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SYSTEM RESTRUCTURING AND SUPPORT AGREEMENT

BY AND AMONG
DAUGHTERS OF CHARITY MINISTRY SERVICES CORPORATION,
A CALIFORNIA NONPROFIT RELIGIOUS CORPORATION,
DAUGHTERS OF CHARITY HEALTH SYSTEM,
A CALIFORNIA NONPROFIT RELIGIOUS CORPORATION,
CERTAIN FUNDS MANAGED BY BLUEMOUNTAIN CAPITAL MANAGEMENT,
LLC, A DELAWARE LIMITED LIABILITY COMPANY,
AND
INTEGRITY HEALTHCARE, LLC
A DELAWARE LIMITED LIABILITY COMPANY

DATED: AS OF JULY 17, 2015

TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS ........................................................................................................... 2
1.1

Definitions................................................................................................................2

ARTICLE 2 TRANSACTION; CONSIDERATION ................................................................... 14


2.1
2.2
2.3
2.5
2.6
2.7

Form of Transaction...............................................................................................14
Retained Assets ......................................................................................................16
Holdback Amount ..................................................................................................17
Deposit ...................................................................................................................17
Concurrent Deliveries ............................................................................................18
Closing Date Payments. .........................................................................................19

ARTICLE 3 CLOSING ................................................................................................................ 19


3.1
3.2
3.3
3.4
3.5

Closing ...................................................................................................................19
Actions of Integrity and BlueMountain at Closing ................................................19
Actions of DOCMSC, DCHS, and the DCHS Affiliates at Closing .....................20
Casualty Loss .........................................................................................................21
Disclaimer of Warranties; Release.........................................................................22

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF DCHS ...................................... 24


4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20

Existence and Corporate Capacity .........................................................................25


Powers; Consents; Absence of Conflicts with Other Agreements.........................25
Binding Agreement ................................................................................................25
Financial Statements ..............................................................................................25
Licenses..................................................................................................................26
Medicare and Medi-Cal Participation ....................................................................26
Compliance with Laws ..........................................................................................26
Contracts ................................................................................................................27
Environmental Matters...........................................................................................27
Real Property .........................................................................................................28
Litigation or Proceedings .......................................................................................29
Medical Staff Matters ............................................................................................29
Tax Liabilities ........................................................................................................29
Employee Benefits .................................................................................................30
Personnel ................................................................................................................31
Insurance ................................................................................................................31
Accounts Receivable ..............................................................................................31
U.S. Persons ...........................................................................................................32
Cost Reports ...........................................................................................................32
Information ............................................................................................................32
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ARTICLE 5 REPRESENTATION AND WARRANTIES OF INTEGRITY AND


BLUEMOUNTAIN ................................................................................................. 32
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.10

Organization and Authorization of Integrity and BlueMountain ...........................32


Corporate Authority; Absence of Conflicts with Other Agreements.....................32
Binding Obligations ...............................................................................................33
Legal Proceedings ..................................................................................................33
Ability to Perform ..................................................................................................33
Required Consents .................................................................................................33
Integritys and BlueMountains Experience and Investigation .............................34
Solvency.................................................................................................................34
Health Care Compliance ........................................................................................34
No Brokers Fees. ..................................................................................................35

ARTICLE 6 COVENANTS OF DCHS ........................................................................................ 35


6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
6.10
6.11
6.12
6.13
6.14
6.15
6.16
6.17
6.18
6.19

Mitigation Plan and Performance Improvement Plan ............................................35


Operation................................................................................................................36
Negative Covenants ...............................................................................................37
Regulatory Approvals; Consents to Assignment ...................................................38
Tax Exempt Status. ................................................................................................40
Additional Financial Information. .........................................................................40
Exclusivity .............................................................................................................40
Supplement to Disclosure Schedules .....................................................................41
D&O Insurance ......................................................................................................41
Fiduciary Liability Insurance .................................................................................42
Retained Assets ......................................................................................................42
Transitional Consulting Services Agreement; Board Authority and
Participation. ..........................................................................................................42
Corporate Name; Grant of Limited License to Use Retained Marks.....................42
Closing Conditions.................................................................................................43
Financial Cooperation ............................................................................................43
Notification of Actions and Proceedings ...............................................................44
Management Agreement ........................................................................................44
Access ....................................................................................................................45
Charitable Purpose. ................................................................................................45

ARTICLE 7 COVENANTS OF INTEGRITY ............................................................................. 45


7.1
7.2
7.3
7.4
7.5
7.6
7.7

Regulatory Approvals ............................................................................................45


Employees ..............................................................................................................46
Pension Liabilities ..................................................................................................48
Consents to Assignment .........................................................................................50
Contact with Unions ..............................................................................................50
Charity Care; Other Related Matters .....................................................................50
Capital Commitment ..............................................................................................51
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7.8
7.9
7.10
7.11
7.12
7.13
7.14
7.15

Intellectual Property ...............................................................................................51


Actions Related to Legal Opinion from Bond Counsel. ........................................51
D&O Coverage ......................................................................................................52
Closing Conditions.................................................................................................52
Right of First Offer. ...............................................................................................52
Seton Medical Center. ............................................................................................52
DOCMSC Lease. ...................................................................................................52
Charitable Purpose. ................................................................................................53

ARTICLE 8 CONDITIONS PRECEDENT TO DCHS OBLIGATIONS .................................. 53


8.1
8.2
8.3
8.4
8.5
8.6
8.7
8.8
8.9
8.10

Representations and Warranties .............................................................................53


Performance of Covenants .....................................................................................53
Actions or Proceedings ..........................................................................................53
Approvals by Governmental Entities; Licenses and Permits; Third-Party
Consents .................................................................................................................54
Hart Scott Rodino Filings ......................................................................................54
Other Approvals .....................................................................................................54
Retained Assets ......................................................................................................54
Other Instruments and Documents.........................................................................54
Legal Opinion from Bond Counsel ........................................................................54
Group Ruling .........................................................................................................54

ARTICLE 9 CONDITIONS PRECEDENT TO INTEGRITYS AND


BLUEMOUNTAINS OBLIGATIONS ................................................................. 55
9.1
9.2
9.3
9.4
9.5
9.6
9.7
9.8
9.9
9.10
9.11

Representations and Warranties .............................................................................55


Performance of Covenants .....................................................................................55
Actions or Proceedings ..........................................................................................55
Approvals by Governmental Entities; Licenses and Permits; Third-Party
Consents .................................................................................................................55
Hart Scott Rodino Filings ......................................................................................55
Title Matters ...........................................................................................................56
Church Approval ....................................................................................................56
No Material Adverse Effect ...................................................................................56
Other Instruments and Documents.........................................................................56
Bankruptcy .............................................................................................................56
Group Ruling .........................................................................................................56

ARTICLE 10 TERMINATION .................................................................................................... 56


10.1
10.2

Termination ............................................................................................................56
Effect of Termination .............................................................................................57

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ARTICLE 11 TAX AND COST REPORT MATTERS............................................................... 57


11.1
11.2

Tax Matters ............................................................................................................57


Cost Report and Other Audits and Contests ..........................................................58

ARTICLE 12 POST-CLOSING MATTERS................................................................................ 58


12.1
12.2
12.3

Retained Assets and Excluded Liabilities ..............................................................58


Access to Records After Closing ...........................................................................58
Consents; Provision of Benefits of Certain Contracts ...........................................59

ARTICLE 13 MISCELLANEOUS .............................................................................................. 60


13.1
13.2
13.3
13.4
13.5
13.6
13.7
13.8
13.9
13.10
13.11
13.12
13.13
13.14
13.15
13.16
13.17
13.18
13.19

Enforcement Expenses ...........................................................................................60


Survival and Enforcement of Governance Provisions ...........................................60
Notice .....................................................................................................................60
Schedules and Other Instruments...........................................................................62
Governing Law; Jurisdiction..................................................................................62
Specific Performance .............................................................................................62
Amendments ..........................................................................................................63
Public Disclosure ...................................................................................................63
Assignment and Benefit .........................................................................................63
Waivers and Consents ............................................................................................63
Severability ............................................................................................................63
Counterparts ...........................................................................................................64
Entire Agreement ...................................................................................................64
Headings ................................................................................................................64
Gender and Number; Construction ........................................................................64
Confidentiality .......................................................................................................64
System Representative ...........................................................................................64
Advance Conflict Waiver ......................................................................................65
Post-Closing Dispute Resolution ...........................................................................67

LIST OF EXHIBITS:
A Transitional Consulting Services Agreement
B Management Agreement
C Commitment Letter
D Purchase Option Agreements
E IT Agreement
F Escrow Deposit Agreement
G Mitigation Plans
H Performance Improvement Plan
LIST OF SCHEDULES:
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Schedule

Description of Schedule

1.1(b)

System Office Employees

1.1(c)

Collective Bargaining Agreements and Defined Church Contribution Plans

2.1(e)

Third-Party Lenders and Funds Managed by Blue Mountain

2.1(k)

IT Agreement

2.2(a)

Retained Intellectual Property

2.2(c)

Religious Artifacts and Donor-Restricted Assets

2.2(e)

Retained Assets

2.6

Designated Account

2.6(c)

Transaction Costs

2.6(d)

Termination Costs for Nonqualified Executive Retirement Plans

4.2(b)

Required Approvals

4.2(c)

Mission Critical Contracts; Required Consents

4.4

Financial Statements & GAAP Exceptions

4.6

Medicare or Medi-Cal Notices & Investigations

4.7(b)

Government Actions to Terminate or Decertify

4.7(c)

Excluded Employees and Exclusion from Federal Health Care Programs

4.7(d)

Corporate Integrity Agreements

4.9(b)

Violations of Environmental Laws

4.10(a)

Owned Real Property

4.10(b)

Proceedings Related to Real Property

4.10(c)

Real Estate Leases

4.10(f)

Unsatisfied Requests for Repairs, Restorations or Improvements

4.11

Material Litigation or Proceedings


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4.12

Medical Staff Matters

4.13(a)

Tax Returns

4.13(b)

Taxes

4.14(a)

Employee Benefits and Retirement Plans

4.14(c)

Liability with Respect to Plans

4.14(e)

Retiree Welfare Benefits and Retirement Plans

4.15(a)

DCHS Employees

4.15(b)

Grievances and Unfair Labor Practice Complaints

4.15(c)

Compliance with Legal Requirements Relating to Employee Health and


Safety

4.16

Insurance

4.19

Cost Reports

5.10

Brokers Fees Blue Mountain

6.2(g)

Retention Payments

6.4(b)

Regulatory Approvals DCHS

6.9

D&O Insurance

6.10

Fiduciary Liability Insurance

6.13

Licensed Intellectual Property

7.1(a)(ii)

Regulatory Approvals Blue Mountain

7.1(a)(iii)

Change of Control Applications and Notices Blue Mountain/Integrity

7.2(b)

DCHS and its Affiliates Severance Policies

7.12

Right of First Offer for Religious Assets

8.8

Transaction Documents

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SYSTEM RESTRUCTURING AND SUPPORT AGREEMENT


THIS SYSTEM RESTRUCTURING AND SUPPORT AGREEMENT (this
Agreement) is made and entered into as of the 17th day of July, 2015 (the Effective Date) by
and among Daughters of Charity Ministry Services Corporation, a California nonprofit
religious corporation (DOCMSC) and Daughters of Charity Health System, a California
nonprofit religious corporation (DCHS), on the one hand, and certain funds managed by
BlueMountain Capital Management, LLC, a Delaware limited liability company, as identified
on Attachment 1 (each a BlueMountain Fund and collectively, the BlueMountain Funds),
and Integrity Healthcare, LLC, a Delaware limited liability company (Integrity), on the other
hand. DOCMSC, DCHS, Integrity, and BlueMountain are each also referred to in this
Agreement as a Party and, collectively as the Parties.
RECITALS
WHEREAS, DCHS is a California nonprofit religious corporation that is the sole
corporate member of the Hospitals, as defined herein, and, in such capacity, controls, directly or
indirectly, and has the authority to commit or otherwise act on behalf of, or bind, the Hospitals
and the other DCHS Affiliates, as defined below, as necessary to implement the terms and
conditions of this Agreement;
WHEREAS, DOCMSC is the sole member of DCHS;
WHEREAS, DCHS and DOCMSC have determined that it is in the best interest of
DCHS to consider strategic alternatives for the operation of the System (defined below) in order
to obtain additional management support, and needed liquidity and working capital for the
System, all in order to better pursue the ongoing delivery of health care services in the
geographic area served by the System consistent with DCHSs mission to operate a health care
system for charitable purposes as described in Section 501(c)(3) of the Code;
WHEREAS, Integrity is wholly owned by funds managed by BlueMountain Capital
Management, LLC;
WHEREAS, in furtherance of the above objectives, the Parties desire to effect the
following System reorganization and related financing transactions: (a) simultaneously with the
execution of this Agreement, DCHS and Integrity shall enter into a Transitional Consulting
Services Agreement, in the form set forth in Exhibit A (the Transitional Consulting Services
Agreement); (b) DCHS and Integrity shall enter into the Health System Management
Agreement in the form attached hereto as Exhibit B (the Management Agreement); (c)
DOCMSC, in its capacity as the sole member of DCHS, shall cause the resignation or removal of
the existing directors of DCHS, and it shall appoint new directors of DCHS (the PostTransaction Directors), who will assume office at Closing; (d) DOCMSC, in its capacity as the
sole member of DCHS, shall cause the DCHS articles of incorporation and bylaws to be
amended to convert DCHS to a non-member public benefit corporation, to change the name of
DCHS to Integrity Health System, Inc., and to make certain other changes (and, for the
avoidance of doubt, all references in this Agreement to DCHS with respect to post-Closing
matters, covenants, and periods shall be deemed to refer to Integrity Health System, Inc., a non-

member public benefit corporation, as the surviving and continuing entity of DCHS);
(e) DOCMSC shall then resign as sole member of DCHS; (f) Lender (as defined below) and
DCHS shall enter into a credit facility at Closing in the principal amount of not less than One
Hundred Fifty Million Dollars ($150,000,000.00) (the Debt Facility) for the benefit of the
System, in accordance with the terms and conditions of the commitment letter in the form
attached as Exhibit C (the Commitment Letter); (g) BlueMountain shall provide a capital
commitment in the principal amount of not less than One Hundred Million Dollars
($100,000,000.00) to Integrity and the Option Holders; and (h) Integrity and the Option Holders
shall make cash payments to DCHS at Closing in the combined aggregate amount of One
Hundred Million Dollars ($100,000,000.00) (the Contribution Funding), as consideration for
(i) the grant of an option or options (the Purchase Option) by DCHS and each of the DCHS
Affiliates, to entities to be formed prior to Closing that will be managed by BlueMountain
Capital Management, LLC and owned by BlueMountain Funds and/or Affiliates of
BlueMountain Funds (collectively, the Option Holders) to purchase substantially all of their
assets subject to all of their liabilities pursuant to the Purchase Option Agreements substantially
in the form of Exhibit D (the Purchase Option Agreements), and (ii) the grant of the right,
assignment, and/or lease, license, or sublease to Integrity to use certain information technology
equipment, infrastructure, software, and licenses of the System in connection with its
performance of the Management Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants contained in this Agreement, and for their mutual reliance and
incorporating into this Agreement the above recitals, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1
Definitions. When used in this Agreement, the following terms shall have the
meanings assigned to them in this Section 1.1.
2005 Bonds means the California Statewide Communities Development Authority
Revenue Bonds (Daughters of Charity Health System) Series 2005A outstanding in the principal
amount as of May 31, 2015 of approximately Two Hundred Fifty-Six Million One Hundred
Seventy Thousand Dollars ($256,170,000) and the California Statewide Communities
Development Authority Revenue Bonds (Daughters of Charity Health System St. Francis
Medical Center) 2005G and 2005H outstanding in the principal amount as of May 31, 2015 of
approximately Twenty-Eight Million Three Hundred Five Thousand Dollars ($28,305,000),
secured by Obligations Nos. 8, 10 and 11 issued under the Master Indenture and by the Deeds of
Trust.
2014 Bonds means the California Statewide Communities Development Authority
Revenue Bonds (Daughters of Charity Health System) 2014 Series A, B and C outstanding in the
principal amount of approximately One Hundred Twenty-Five Million Dollars ($125,000,000),
secured by Obligations 13, 14 and 15 issued under the Master Indenture.
AAA has the meaning given it in Section 13.19.
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Acceptable AG Conditions shall mean those conditions that are mandated by the
California Attorney General in consenting to the Transaction, considering those which have been
required as a part of the consent conditions for transactions of a similar nature involving nonprofit and for-profit based hospital transactions, as made applicable to the activities, programs
and services of the Hospitals that are in place as of the Effective Date, subject to implementation
of the Mitigation Plans. Such conditions, as applicable to specific DCHS Affiliates, may include
minimum annual expenditure requirements for charity care and community benefit programs,
which may take into consideration over time a current community needs assessment, regulatory
changes and the ability of an individual Hospital to continue the same level of funding
commitment during periods of time when it is not generating sufficient cash flow to cover the
payment of its ongoing financial obligations.
Actual Fraud means intentional or reckless conduct constituting actual fraud as defined
in accordance with the laws of the State of California or the United States of America.
Affiliate means an entity which, directly or indirectly, controls, is controlled by, or is
under common control with, the referenced party. For purposes of this definition, the term
control (including the correlative meanings of the terms controlled by and under common
control with), as used with respect to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of management policies of such Person, or the ability to
appoint or remove a majority of the members of the Board of Directors or Board of Trustees of
an entity, provided that, with respect to DCHS and BlueMountain Affiliate shall not include
officers or directors of DCHS or BlueMountain and for purposes of this Agreement, Integrity
shall be considered an Affiliate of BlueMountain. For avoidance of doubt, DOCMSC is an
Affiliate of DCHS for all purposes in this Agreement, except for the purpose of the definition of
DCHS Affiliates, which expressly excludes DOCMSC.
Aggregate Damage has the meaning given it in Section 3.4(a).
Agreement has the meaning set forth in the introductory paragraph.
Alternative Proposal means any contract, proposal, offer or indication of interest
relating to any transaction or series of related transactions (other than transactions with
BlueMountain, Integrity, or any of their Affiliates) (a) involving any sale, lease or disposition or
reaffiliation of all (or any material portion of) the System, any DCHS Affiliate, any Hospital or
any of their respective material assets, (b) involving any issuance, purchase, sale or other
disposition of any membership or equity interests of any DCHS or any DCHS Affiliate, or any
reaffiliation, merger, consolidation, business combination, or similar transaction involving
DCHS or any DCHS Affiliate or any entity within the System or (c) the purpose or effect of
which would be reasonably expected to, or which would, prevent, or otherwise frustrate or
impede in any material respect, the transactions contemplated by this Agreement or the
Transaction Documents.
Antitrust Filings has the meaning given it in Section 6.4(b)(i).
Application has the meaning given it in Section 6.4(a).
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Balance Sheet Date has the meaning given it in Section 4.4.


BlueMountain means, collectively, the BlueMountain Funds and any special purpose
vehicles owned by any BlueMountain Fund formed for purposes of this Agreement.
BlueMountain Fund(s) has the meaning given it in the introductory paragraph and,
further, the BlueMountain Funds will be severally, and not jointly, liable to the extent they are
otherwise liable under any of the Transaction Documents.
Bond Consents has the meaning given it in Section 6.14.
Bonds means the 2005 Bonds and the 2014 Bonds.
Break-Up Fee has the meaning given it in Section 6.7.
Business Day means a day other than a Saturday, Sunday or other day on which
commercial banks in New York or California are authorized or required by Law to close.
California Attorney General Approval means either the written consent of the
California Attorney General to the Transaction, or the conditional consent of the California
Attorney General to the Transaction, which shall include only those conditions defined as
Acceptable AG Conditions.
Casualty Notice has the meaning given it in Section 3.4(a).
CBS means Caritas Business Services, a California nonprofit religious corporation of
which DCHS is the sole Class A Member.
CBS Senior Directors means the individuals set forth on Schedule 1.1(b).
Church Approval has the meaning given it in Section 8.6.
Church Law has the meaning given it in Section 8.6.
Closing has the meaning given it in Section 3.1.
Closing Date has the meaning given it in Section 3.1.
Closing Proceeds has the meaning given it in Section 2.3.
Code means the Internal Revenue Code of 1986, as amended.
Collective Bargaining Agreements means the collective bargaining agreements and
other labor union contracts, including any expired collective bargaining agreement with respect
to which a duty to bargain still exists, all as listed on Schedule 1.1(c).
Commitment Letter has the meaning given it in the recitals.
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Confidentiality Agreement has the meaning given it in Section 13.16.


Continuing Employee has the meaning given it in Section 7.2(a).
Contracts means all of the contracts, operating and capital leases, Bonds, loan
commitments, Real Estate Leases, agreements and commitments relating to the ownership and
operation of the System, including the physician service agreements, the Collective Bargaining
Agreements, and any continuing obligation imposed by Law to bargain with any union,
including any liabilities arising from the results of any bargaining with the union.
Contribution Funding has the meaning given it in the recitals.
Cost Reports means all cost and other reports filed by the System for payment and/or
reimbursement from Government Entity payment programs and other payors with respect to the
System.
CRO has the meaning given it in the Performance Improvement Plan.
Debt Facility has the meaning given it in the fourth recital to this Agreement.
Debt Facility Documents has the meaning given it in Section 2.1(e).
DCHS means the legal entity described in the introductory paragraph.
DCHS Affiliates means, collectively, the Hospitals, any and all Affiliates of the
Hospitals, and any other Affiliates of DCHS, including but not limited to, Caritas Business
Services, a California nonprofit religious corporation of which DCHS is the sole Class A
member, DCHS Medical Foundation, a California nonprofit religious corporation of which
DCHS is the sole corporate member, St. Vincent de Paul Ethics Corporation, a California
nonprofit public benefit corporation, St. Vincent Dialysis Center, Inc., a California nonprofit
public benefit corporation, Marillac Insurance Company, Ltd., a Caymans entity of which DCHS
is the sole shareholder, the Philanthropic Foundations, De Paul Ventures, LLC, a California
limited liability company of which DCHS is the sole member, De Paul Ventures San Jose
ASC, LLC, a California limited liability company, and De Paul Ventures San Jose Dialysis,
LLC.
DCHS Affiliate Amended Articles has the meaning given it in Section 2.1(i).
DCHS Affiliate Amended Bylaws has the meaning given it in Section 2.1(h).
DCHS Amended Articles has the meaning given it in Section 2.1(b).
DCHS Amended Bylaws has the meaning given it in Section 2.1(b).
DCHS Employees has the meaning given it in Section 4.15(a).
DCHS Executives means those individuals identified on Schedule 1.1(b).
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DCHS Marks is defined in Section 2.2(a).


DCHS Medical Foundation Chief Medical Officer means the individual serving from
time to time as the chief medical officer of DCHS Medical Foundation.
DCHS Medical Foundation President means the individual serving from time to time
as the chief executive officer of DCHS Medical Foundation.
DCHS Names is defined in Section 2.2(a).
DCHS Plans has the meaning given it in Section 4.14(a).
DCHS Pre-Closing Communications has the meaning given it in Section 13.18.
DCHS Related Parties has the meaning given it in Section 13.18.
Deeds of Trust means each Deed of Trust with Fixture Filing and Security Agreement
dated as of December 1, 2001 granted by a Member of the DCHS Obligated Group to the Master
Trustee under the Master Indenture.
Defined Benefit Church Plan means the Daughters of Charity Health System
Retirement Plan, which has been consistently treated and administered by DCHS as a nonelecting church plan as defined in Section 3(33) of ERISA and Section 414(e) of the Code.
Defined Contribution Church Plans means the Daughters of Charity Health System
Retirement Plan Account, the Daughters of Charity Health System Supplemental Retirement
Plan (401(a)) and the Daughters of Charity Health System Supplemental Retirement Plan
(TSA/403(b)), and any other defined contribution plan that is listed on Schedule 1.1(c) (whether
or not frozen), each of which has been consistently treated and administered by DCHS as a nonelecting church plan as defined in Section 3(33) of ERISA and Section 414(e) of the Code.
Deposit has the meaning given it in Section 2.4(a).
Deposit Escrow Agent has the meaning given it in Section 2.4(a).
Deposit Escrow Agreement has the meaning given it in Section 2.4(a).
Disclosure Schedules has the meaning given it in Article 4.
DOCMSC means the legal entity described in the introductory paragraph.
D&O Insurance has the meaning given it in Section 6.9.
Effect of the Transaction on the Tax Status of DCHS means the legal consequences
with respect to the exclusion of interest paid or payable on the Bonds from gross income of
bondholders or former bondholders for federal income tax purposes of: the execution and
delivery of the Transaction Documents, the consummation of the Transaction, the performance
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and satisfaction of each of the Transaction Documents in accordance with its terms, and the
operation of the DCHS Affiliates under the terms of the Transaction Documents, including the
provisions of this Agreement prior to the Closing.
Effective Date has the meaning set forth in the introductory paragraph.
Effective Time has the meaning given it in Section 3.1.
Employee Pension Benefit Plan has the meaning set forth in Section 3(2) of ERISA.
Employee Welfare Benefit Plan has the meaning set forth in Section 3(1) of ERISA.
Encumbrance means any mortgage, deed of trust, pledge, assessment, security interest,
lease, sublease, lien (including mechanics or materialmens liens and judgment liens), levy,
right of way, easement, covenant, charge or other encumbrance of any kind, whether imposed by
contract, Law, equity or otherwise.
Enforceability Exceptions has the meaning given it in Section 4.3.
Environmental Laws shall mean all Laws relating to: (i) the control of any potential
pollutant or protection of the ambient air, indoor air, groundwater, drinking water, storm water,
waste water, wetlands, surface or subsurface soil or land; (ii) solid, gaseous or liquid waste
generation, handling, treatment, storage, disposal, arrangement for disposal or transportation;
(iii) exposure to hazardous, toxic or other substances alleged to be harmful; and (iv) worker
health and safety, and includes without limitation, (A) judicial, administrative, or other
regulatory decrees, judgments, and orders of any Governmental Entity, and (B) the following
statutes and the regulations promulgated thereunder: the Clean Air Act, 42 U.S.C. 7401 et seq.,
the Clean Water Act, 33 U.S.C. 1251 et seq., the Resource Conservation and Recovery Act, 42
U.S.C. 6901 et seq., the Superfund Amendments and Reauthorization Act, 42 U.S.C. 11011
et seq., the Toxic Substances Control Act, 15 U.S.C. 2601 et seq., the Water Pollution Control
Act, 33 U.S.C. 1251 et seq., the Safe Drinking Water Act, 42 U.S.C. 300f et seq., CERCLA,
OSHA, the Hazardous Materials Transportation Act, 49 U.S.C. 1801 et seq., and any other
state, county, or local regulations similar thereto.
Environmental Survey has the meaning given it in Section 4.9(a).
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Estimate has the meaning given it in Section 3.4(a).
Excluded Liabilities means any liabilities directly associated with, arising from, or
secured by any Retained Assets.
Fiduciary Liability Insurance has the meaning given it in Section 9.
Financial Statements has the meaning given it in Section 4.4.
-7-

GAAP means United States generally accepted accounting principles as in effect from
time to time, and applied by DCHS consistently throughout the periods indicated and in
accordance with DCHSs prior practices and policies.
GAAP Exceptions has the meaning given it in Section 4.4.
Governmental Entity means any federal, state or local court, legislative body,
governmental body, municipality, political subdivision, department, agency or authority,
including the Attorney General of California and the Medicare and Medicaid programs
(including their fiscal intermediaries and administrative contractors).
Guaranties has the meaning given it in Master Indenture.
Hazardous Materials means any (i) toxic or hazardous materials or substances,
including mold; (ii) solid wastes, including asbestos, polychlorinated biphenyls, mercury,
chemicals, flammable or explosive materials; (iii) radioactive materials (including naturallyoccurring radioactive materials); (iv) petroleum or petroleum products (including crude oil); (v)
medical waste; and (vi) any other chemical, pollutant, contaminant, substance or waste that is
regulated by any Governmental Entity under any Environmental Laws.
Health Care Laws means all Laws applicable to health care providers and facilities;
federal and state health care program conditions of participation, standards, policies, rules,
procedures and other requirements; and accreditation standards of any applicable accrediting
organization, including the federal (Title XIX of the Social Security Act) and state Medicaid
programs and their implementing regulations, the Medicare Program (Title XVIII of the Social
Security Act) and its implementing regulations, the federal False Claims Act (31 U.S.C. 3729
et seq.), the Federal Health Care Program Anti-Kickback Statute (42 U.S.C. 1320a 7b(b)), the
Federal Physician Self-Referral Law (42 U.S.C. 1395nn), the Federal Administrative False
Claims Law (42 U.S.C. 1320a 7b(a)), the Beneficiary Inducement Statute (42 U.S.C. 1320a7a(a)(5)), the HIPAA and the HIPAA Privacy Rule, the HIPAA Security Rule and the HIPAA
Standards for Transactions and Code Sets (42 U.S.C. 1320d 1329d 8; 45 CFR Parts 160 and
164), the Health Information Technology for Economic and Clinical Health Act (Title XIII of
Division A and Title IV of Division B of the American Recovery and Reinvestment Act of 2009,
Pub. L. No. 111-5 (Feb. 17, 2009)), the federal Confidentiality of Alcohol and Drug Abuse
Patient Records Act (42 U.S.C. 290ee 3), the Rehabilitation Act, the Americans with Disabilities
Act, the Occupational Safety and Health Administration statutes and regulations for blood borne
pathogens and workplace risks, and any state and local laws and the regulations promulgated
pursuant to such laws, that address the same or similar subject matter. Health Care Laws also
include federal, state and local health care laws applicable to health care providers and facilities,
including, without limitation, laws related to: federal and state health care program billing, cost
reporting, revenue reporting, payment and reimbursement; federal and state health care program
fraud, abuse, theft or embezzlement; procurement of health care services, human and social
services, and other health related services; employee background checks and credentialing of
employees; credentialing and licensure of facilities or providers of such services; zoning,
maintenance, safety and operations of group homes, residential facilities and day programs, and
other building health and safety codes and ordinances; health facility planning laws; state law
-8-

restrictions on the corporate practice of medicine (and the corporate practice of any other health
related profession); eligibility for federal and state health care program contracting, including
any requirements limiting contracting to nonprofit or tax exempt entities; patient information and
medical record confidentiality, including psychotherapy and mental health records; splitting of
health care fees; patient brokering, patient solicitation, patient capping, and/or payment of
inducements to recommend or refer, or to arrange for the recommendation or referral of, patients
to health care providers or facilities; standards of care, quality assurance, risk management,
utilization review, peer review, and/or mandated reporting of incidents, occurrences, diseases
and events; advertising or marketing of health care services; and the enforceability of restrictive
covenants on health care providers.
Holdback Amount has the meaning given it in Section 2.3.
Hospital CEOs means the individuals serving from time to time as the chief executive
officers of the Hospitals.
Hospital Trademarks means the following trademarks: St. Francis Medical Center,
St. Vincent Medical Center, Seton Medical Center, Seton Medical Center Coastside,
Saint Louise Regional Hospital, OConnor Hospital, St. Vincent Dialysis Center, De Paul
Urgent Care Center, OConnor Urgent Care, OConnor Wound Care Clinic, Seton Express
Care, San Francisco Heart and Vascular Institute, St. Vincent Orthopaedic Institute,
St. Vincent Cardiac Care Institute, St. Vincent Spine Institute, and Asian Pacific Liver
Center.
Hospitals means and includes the licensed acute care hospitals organized as nonprofit
religious corporations under California law known as OConnor Hospital, Saint Louise Regional
Hospital, St. Francis Medical Center, St. Vincent Medical Center, Seton Medical Center, and the
skilled nursing home and emergency department known as Seton Medical Center Coastside, a
division of Seton Medical Center.
HSR Act means the Hart-Scott Rodino Antitrust Improvements Act of 1976, as
amended.
Insurance Policies has the meaning given it in Section 4.16.
Integrity has the meaning given it in the introductory paragraph.
Integrity Notice has the meaning given it in Section 3.4(c).
Integrity Related Parties has the meaning given it in Section 13.18.
Intellectual Property means all patents, trademarks, service marks, trade names, logos,
trade dress, domain names, copyrights, know-how, trade secrets, and corresponding applications
and registrations.
IT Agreement has the meaning given it in Section 2.1(k).
-9-

Knowledge means with respect to (i) DCHS, the actual then current knowledge of the
Chief Executive Officer, Chief Financial Officer, Chief Compliance Officer, and General
Counsel of DCHS, and the Hospital CEOs (whose knowledge will include information that
would be obtained after reasonable inquiry of their Chief Financial Officer) as of the Effective
Date and Closing; (ii) Integrity, the actual then current knowledge of its respective Chief
Executive Officer or the Chief Operating Officers as of the Effective Date and Closing; and (iii)
BlueMountain or any BlueMountain Fund, the actual then current knowledge of the Managing
Member of BlueMountain Capital Management, LLC, the investment manager of each
BlueMountain Fund. No constructive or imputed knowledge shall be attributed to any such
individual by virtue of any position held, relationship to any other Person or for any other reason,
except as specifically set forth herein.
Law means any constitution, law (including common law), statute, standard, ordinance,
code, rule, regulation, resolution, or promulgation of any Governmental Entity or any license,
franchise, permit, or similar right granted under any of the foregoing, or any similar provision or
duty or obligation having the force or effect of law.
Lender has the meaning given it in Section 2.1(e).
License Period has the meaning given it in Section 6.13.
Licenses and Permits means, collectively, all licenses, permits, certificates,
registrations, accreditations, consents, orders, authorizations and approvals with respect to the
System obtained from, filed with or issued by any Governmental Entity or pursuant to any Law.
Local 39 Pension Plan means the Stationary Engineers Local 39 Pension Plan.
Loss Consultant has the meaning given it in Section 3.4(c).
Losses has the meaning given it in Section 3.5(c).
Management Agreement has the meaning given it in the recitals.
Master Indenture means the Master Indenture of Trust dated as of December 1, 2001
among the Members of the DCHS Obligated Group and the Master Trustee, as amended and
supplemented.
Master Trustee shall have the meaning given to such term in the Master Indenture.
Material Adverse Effect any result, occurrence, fact, change, event or effect that has a
material adverse impact on the business, assets, financial condition or results of operation of the
System taken as a whole, except as may otherwise be set forth in this Agreement; provided,
however, that none of the following shall be deemed in themselves (either individually or in the
aggregate) to constitute, and none of the following shall be taken into account in determining
whether there has been or will be, a Material Adverse Effect: (i) any change in economic or
political conditions or the United States or foreign economies or securities or financial markets in
- 10 -

general; (ii) any change generally affecting industries, markets or geographical areas in which
the applicable Hospital operates; (iii) the negotiation, execution, announcement, pendency or
performance of this Agreement or the Transaction, including compliance with the terms, or
taking any action required by this Agreement or any communication with DCHS or any of its
Affiliates of their plans or intentions (including in respect of employees) with respect to the
System; (iv) the consummation of the Transaction or any actions by the Parties taken pursuant to
this Agreement or in connection with the Transaction; (v) losses from operations of the Hospitals
that are materially consistent with the historical performance of the Hospitals, including the
impact of QAF funds received during the period between the execution of this Agreement and
the Closing, provided that such losses are not the result of a failure to adhere to the terms and
conditions of this Agreement, including the implementation of the Performance Improvement
Plan; (vi) any change arising in connection with natural disasters or acts of nature, hostilities,
acts of war, sabotage or terrorism or military actions or any escalation or material worsening of
any such hostilities, whether or not occurring or commenced before or after the date of this
Agreement; (vii) any changes in applicable Laws, accounting rules or the interpretation thereof
that are not directed at DCHS, BlueMountain, Integrity, the System, the Hospitals, or similar
hospitals, in each instance to the exclusion of others; (viii) changes in GAAP; (ix) any labor
strike or work stoppage or interruption; (x) any actions taken by DCHS at the recommendation
of Integrity, its Affiliates, the PISC or any of their directors, officers or employees; (xi) actions
required to be taken by DCHS under applicable Law or contracts; (xii) the retention of the
Retained Assets; or (xiii) the Effect of the Transaction on the Tax Status of DCHS. For clarity,
the filing of any voluntary or involuntary petition of insolvency or bankruptcy of DCHS or any
DCHS Affiliate is a Material Adverse Event.
Material Loss has the meaning given it in Section 3.4(b).
Meet and Confer has the meaning given it in Section 13.19.
Member of the DCHS Obligated Group means each of DCHS, OConnor Hospital,
Saint Louise Regional Hospital, Seton Medical Center, St. Francis Medical Center and
St. Vincent Medical Center.
Mission Critical Contracts has the meaning given it in Section 4.2(c).
Mitigation Plans has the meaning given it in Section 6.1.
Multiemployer Plan or Multiemployer Plans means one or both of the Local 39
Pension Plan and the RPHE.
Offer shall have the meaning given it in Section 7.12.
Offer Notice shall have the meaning given it in Section 7.12.
Offered Assets shall have the meaning given it in Section 7.12.
Operating Revenue Deficiency has the meaning given it in Section 7.3(b).
- 11 -

Option Holders has the meaning given it in the recitals.


Outside Date has the meaning given it in Section 10.1(b).
Party and Parties have the meaning set forth in the introductory paragraph.
PBGC has the meaning given it in Section 7.3(a).
Performance Improvement Plan has the meaning given it under Section 6.1.
Permitted Exceptions has the meaning as set forth for the defined term Permitted Liens
under the Master Indenture.
Person means any individual or any corporation, association, partnership, limited
liability company, joint venture, joint stock or other company, business trust, trust, organization,
Governmental Entity or other entity of any kind.
Personal Property Leases means all arrangements by which DCHS or any DCHS
Affiliate, as lessee, obtains and holds rights to use personal property, whether clarified as an
operating lease or capital lease under GAAP.
Philanthropic Foundations means, collectively, OConnor Hospital Foundation, Saint
Louis Regional Hospital Foundation, St. Francis Medical Center of Lynwood Foundation,
St. Vincent Medical Center Foundation and Seton Medical Center Foundation, each a California
nonprofit public benefit corporation.
PISC has the meaning given it in the Performance Improvement Plan.
Post-Closing Dispute has the meaning given it in Section 13.19.
Post-Closing Dispute Notice has the meaning given it in Section 13.19.
Post-Closing Representation has the meaning given it in Section 13.18.
Post-Transaction Directors has the meaning given it in the recitals to this Agreement.
All Post-Transaction Directors will meet the qualifications of IRS Rev. Ruling 69-545, the IRS
governance related requirements of IRS Rev. Procedure 97-13 and California Corporations Code
Section 5227.
Pre-Closing Representation has the meaning given it in Section 13.18.
Prior Company Counsel has the meaning given it in Section 13.18.
Public Taking has the meaning given it in Section 4.10(e).
Purchase Option Agreements has the meaning given it in the recitals to this Agreement.
- 12 -

Purchase Option has the meaning given it in the recitals to this Agreement.
Real Estate Leases has the meaning given it in Section 4.10(c).
Real Property has the meaning given it in Section 4.10(a).
Records means all files, data, documents, records, correspondence, work papers,
operating manuals and other documents including without limitation employee records, financial
records, equipment records, construction plans and specifications, patient records, medical
records and medical and administrative libraries, medical staff, peer review and physician
credentialing records and files, and on-site regulatory compliance records, including in each case
electronically stored files, data, documents and records.
Related Marks is defined in Section 2.2(a).
Released Parties has the meaning given it in Section 3.5(c).
Releasors is defined in Section 3.5(c).
Retained Assets has the meaning given it in Section 2.2.
Retained IP has the meaning given it in Section 2.2(b).
Retained Marks is defined in Section 2.2(a).
Retained Records means all Records relating to the Retained Assets.
RPHE means the Retirement Plan for Hospital Employees, as Amended and Restated
Effective January 1, 2012 and as further amended.
Right of First Offer shall have the meaning given it in Section 7.12.
Sacred Object are those items listed in Schedule 2.2(c).
Schedule Supplement has the meaning given it in Section 6.8.
Section 1542 has the meaning given it in Section 3.5(c).
System has the meaning given it in the first recital to this Agreement and, for the
avoidance of doubt, specifically includes DCHS, the DCHS Affiliates, and the assets and
interests of each of DCHS and the DCHS Affiliates of any kind and type (including interests in
joint ventures, partnerships, or agreements in which DCHS or any DCHS Affiliate has any
interest), and the following medical office properties, each of which is owned in connection with
one of the Hospitals: Huntington Park Medical Office Building; Maywood Medical Office
Building; St. Vincent Professional Office Building; Ocean View Pavilion; Medical Office
Building (OConnor Hospital); Clarmar Building; Barclay Building Medical Office Condo;
Morgan Hill Medical Office Building; Serramonte Medical Center; SMOC #1 Medical Office
- 13 -

Building; and SMOC #2 Medical Office Building; and the following land, each of which is
owned in connection with St. Francis Medical Center, Parking Garage #2 Land, and the land
located at 3628 Imperial Highway, Lynwood, CA 90262, on which the St. Francis Medical Plaza
is located.
System Office Employees has the meaning given it in Section 7.2(b).
Tax Return means any return, declaration, report, claim for refund or information
return or statement relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
Taxes or Tax means, collectively, federal, state and local income, payroll,
withholding, excise, sales, use, real and personal property, use and occupancy, business and
occupation, mercantile, real estate, capital stock and franchise or other taxes, including penalties
and interest thereon and estimated taxes.
Transaction has the meaning given it in Section 2.1.
Transaction Documents has the meaning given it in Section 8.8.
Transitional Consulting Services Agreement has the meaning given it in the recitals.
ARTICLE 2
TRANSACTION; CONSIDERATION
2.1
Form of Transaction. Subject to the terms and conditions set forth herein, at
Closing, the Parties shall effect the following actions and transactions, none of which shall be
deemed to occur or be effective unless all such transactions are deemed to occur and be effective
(collectively, the Transaction):
(a)
DOCMSC, in its capacity as the sole member of DCHS, shall cause the
resignation or removal of the existing directors of DCHS and it shall appoint the PostTransaction Directors to assume office as of the Closing. BlueMountain is in the process of
identifying candidates to be recommended to DOCMSC as the Post-Transaction Directors.
Candidates will be independent and otherwise meet all applicable legal requirements, and will
have the expertise and skills appropriate to guide the System, as it undertakes a significant
transformation. The current directors of DCHS will also be solicited for recommendations for
candidates of Post-Transaction Directors. For the avoidance of doubt, the Post-Transaction
Directors shall be appointed by DOCMSC, in its sole and exclusive discretion, in accordance
with the current bylaws of DCHS and may or may not include the candidates recommended as
Post-Transaction Directors by Integrity and the current directors of DCHS;
(b)
DOCMSC, in its capacity as the sole member of DCHS, shall cause DCHS
to approve and adopt (i) amended and restated Articles of Incorporation of DCHS in such form
as may be necessary to implement this Agreement (the DCHS Amended Articles), in order to
change the name of DCHS to Verity Health System of California, Inc., convert DCHS to a non- 14 -

member public benefit corporation, and to make certain other changes, and (ii) amended and
restated Bylaws of DCHS (the DCHS Amended Bylaws) in such form as may be necessary to
implement this Agreement, and to reflect and be consistent with the terms and conditions,
inclusive of the reserve powers, of the Request for Group Exemption Letter dated May 29, 2015,
directed to the Internal Revenue Service, all of which shall take effect at the Effective Time;
(c)

DOCMSC shall then resign as the sole member of DCHS;

(d)
Integrity and DCHS shall each execute and deliver the Management
Agreement, which among other things, will result in Integrity providing the DCHS Chief
Executive Officer;
(e)
One or more third-party lenders secured by BlueMountain Capital
Management, LLC or funds managed by BlueMountain Capital Management, LLC (or an
Affiliate of such funds) specifically identified in Schedule 2.1(e) (collectively, the Lender) and
the Members of the DCHS Obligated Group shall enter into the Debt Facility, and as of the
Closing, Lender and the Members of the DCHS Obligated Group shall execute and deliver any
credit or loan agreement, promissory notes, security agreements, mortgages, deeds of trust, and
other agreements, certificates or documents as required by Lender to implement the terms of the
Commitment Letter (collectively, the Debt Facility Documents);
(f)
DCHS, the DCHS Affiliates, and the Option Holders shall each execute
and deliver the Purchase Option Agreements;
(g)
DCHS shall cause the resignation or removal of the existing members of
the board of directors or other governing bodies of the Hospitals, and it shall appoint or cause the
appointment of replacement directors pursuant to the same process of selection and approval
applicable under Section 2.1(a);
(h)
DCHS and the governing bodies of the Hospitals and the other DCHS
Affiliates shall cause the bylaws or other governing documents of the Hospitals and other DCHS
Affiliates to be amended in order to make the changes necessary to implement this Agreement,
and to reflect and be consistent with the terms and conditions, inclusive of the reserve powers,
Request for Group Exemption Letter dated May 29, 2015, directed to the Internal Revenue
Service (collectively, the DCHS Affiliate Amended Bylaws);
(i)
the DCHS Amended Articles and any amended or restated articles of
incorporation of the Hospitals or DCHS Affiliates in such form as may be necessary to
implement this Agreement (collectively, the DCHS Affiliate Amended Articles) shall be filed
with the California Secretary of State;
(j)
the Parties acknowledge and agree that DCHS will continue to address
funding shortfalls for Employee Pension Benefit Plans and Employee Welfare Benefit Plans after
the Closing;

- 15 -

(k)
As of the Closing Date, the DCHS and DCHS Affiliates will lease,
sublicense, and/or make an assignment, to the extent permissible under their respective license
agreements and equipment leases, certain information technology infrastructure and equipment
to Integrity (including appropriate software licenses) as initially set forth on Schedule 2.1(k),
upon the terms and conditions of the information technology agreement in substantially the form
attached hereto as Exhibit E (the IT Agreement) with such changes as the Parties may agree to
at or prior to Closing. Integrity will use the items and equipment leased or licensed under the IT
Agreement for the purpose of managing the System after the Closing and performing its duties
and obligations under the Management Agreement; and
(l)
The Option Holders and Integrity shall, collectively, pay the Contribution
Funding to DCHS, as consideration for the Purchase Option Agreements and IT Agreement,
respectively, with the portion of the Contribution Funding payable by the Option Holders being
equal to the purchase price under the Purchase Option Agreements and the portion of the
Contribution Funding payable by Integrity being equal to the one-time payment required of
Integrity under the IT Agreement, in each case as will be determined by a health care valuation
expert prior to Closing.
2.2
Retained Assets. Notwithstanding anything to the contrary in Section 2.1, prior to
the Closing, DCHS shall, or shall cause any applicable DCHS Affiliate to, assign, transfer,
convey and distribute to DOCMSC the following assets (collectively, the Retained Assets):
(a)
all trademarks, domain names and website content listed on
Schedule 2.2(a), and any other trademark or domain name that contains, uses or references the
name Daughters, Daughters of Charity, Daughters of Charity Health System, DCHS,
DOCHS, DCHS Medical Foundation, or any such similar name (the DCHS Names;
together with any abbreviations, variations, logos or symbols associated or used in connection
with the DCHS Names or Retained Assets, the DCHS Marks), and any trademark or domain
name that contains, uses or references the name of a Person belonging to or affiliated with DCHS
(together with any abbreviations, variations, logos or symbols associated or used in connection
therewith, the Related Marks). The DCHS Marks and the Related Marks are collectively, the
Retained Marks;
(b)
all copyrights, including website content, listed on Schedule 2.2(a)
(together with the Retained Marks, the Retained IP), and subject to Integritys rights under
Section 12.2, the Retained Records;
(c)
any religious artifacts, including any Sacred Object, and the assets and
donor-restricted assets listed on Schedule 2.2(c);
(d)
the Lease Agreement between Daughters of Charity of St. Vincent de
Paul, Province of the West and DCHS dated October 1, 2001 for the building at 26000 Altamont
Road, Los Altos Hills, California; and
(e)

any asset or contract listed on Schedule 2.2(e).


- 16 -

2.3

Holdback Amount.

(a)
At the Closing, DCHS shall transfer funds from the Debt Facility proceeds
to DOCMSC, to be deposited by DOCMSC in a segregated deposit account controlled by
DOCMSC, in an amount equal to Eleven Million Five Hundred Thousand Dollars ($11,500,000),
less the amount of severance and accrued paid time-off paid to those DCHS employees who do
not continue their employment with DCHS as of the Effective Time, and less the amount of
severance pay and accrued paid time-off that would have been owed to those System Office
Employees who execute new written employment agreements with DCHS as of the Effective
Time (the Holdback Amount).
(b)
To the extent DCHS or a DCHS Affiliate does not make a severance
payment and payment for any accrued paid-time off to a terminated System Office Employee
(without a new written employment agreement) between the Effective Time and the first
anniversary of the Effective Time in an amount consistent with the obligations described in
Schedule 7.2(b), DOCMSC shall be entitled to make such payments directly to such System
Office Employee out of the Holdback Amount. DOCMSC and Integrity shall meet quarterly to
reconcile the then remaining Holdback Amount with any severance and accrued paid-time off
payments made by DCHS or any DCHS Affiliate during the preceding fiscal quarter, and
DOCMSC shall release to Integrity from the Holdback Account an amount not less than the
severance payments and accrued paid time-off made by DCHS or any DCHS Affiliate during
such preceding fiscal quarter to any terminated System Office Employees (or the entire
Holdback Amount, in DOCMSCs discretion, if DOCMSC determines that DCHS is making
timely severance payments). In any event, in not longer than twelve (12) months from the
Effective Time, any remaining Holdback Amount shall be released to DCHS.
2.4

Deposit.

(a)
Concurrently with the execution of this Agreement, Integrity shall deliver
to Citibank National Association (the Deposit Escrow Agent) the sum of Forty Million Dollars
($40,000,000.00) (as adjusted pursuant to Section 2.4(b), the Deposit). The Deposit shall be
held in escrow in an interest bearing account by the Deposit Escrow Agent, all as more fully set
forth in that certain Deposit Escrow Agreement in the form attached hereto as Exhibit F (the
Escrow Deposit Agreement), which has been executed by Integrity, DCHS, and the Deposit
Escrow Agent concurrently herewith, the delivery of the Deposit to the Deposit Escrow Agent
having also occurred. At the Closing, the Deposit and the earnings thereon shall be applied to
payment of the Contribution Funding.
(b)
Prior to Closing, the Deposit is and shall be at all times the property of
Integrity and Integrity agrees that the Deposit shall be used and distributed to cover all costs and
expenses of DCHS arising under or in connection with the Transitional Consulting Services
Agreement or implementation of the Performance Improvement Plan including, without
limitation, reimbursable expenses payable to Integrity and any fees or compensation payable to
the CRO; provided, however, that to the extent the actions of the CRO and/or Integrity under the
Transitional Consulting Services Agreement result in a reduction in DCHS expenses relating to
the use of outside consultants during the period after the Effective Date and prior to the Closing
- 17 -

Date, the amount of such expense reduction shall be credited to the Deposit and an offset to any
further charge against the Deposit for such expenses. In the event this Agreement is terminated,
the amount of the Deposit remaining after the debits and credits described in the foregoing
sentence shall be released to the Party entitled thereto as more specifically set forth in this
Section below; provided, however, that if Integrity is entitled to a return of the Deposit under
Section 2.4(d)(ii), Section 2.4(d)(iv), of Section 2.4(d)(v) there shall be no offset, charge against,
or reduction to the Deposit for expenses paid or payable to DCHS arising under or in connection
with the Transitional Consulting Services Agreement and Integrity shall be entitled to a full
refund of the original amount of the Deposit, plus all interest accrued thereon. Other than the
right to receive the Deposit in accordance with the specific provisions below, DCHS shall have
no right or interest or claim to, or in any way with respect to, the Deposit.
(c)
If this Agreement is validly terminated pursuant to Section 10.1(b) (due to
the failure of BlueMountain or Integrity for any reason other than a failure of DCHS to satisfy
any of the conditions of Article IX), Section 10.1(d) (for any reason other than the failure of the
condition to Closing set forth at Section 8.10 (Group Ruling)), or Section 10.1(e), then DCHS
shall be entitled to a distribution of one hundred percent (100%) of the Deposit and any interest
accrued thereon from the Deposit Escrow Agent. This Section 2.4(c) shall constitute DCHS sole
monetary remedy under this Section 2.4 and upon such acceptance hereunder will be deemed to
be liquidated damages to DCHS.
(d)

If this Agreement validly terminates pursuant to:


(i)

Section 10.1(a);

(ii)
Section 10.1(b) (except where any of the conditions of Article VIII
that by their nature can be satisfied before Closing are not satisfied);
(iii)

Section 3.1, 3.4(b) or (c);

(iv)
An Integrity or BlueMountain Fund termination of this Agreement
pursuant to Section 10.1(c) for DCHSs failure to satisfy a condition set forth in Article 9; or
(v)
A DCHS termination of this Agreement pursuant
Section 10.1(d) for failure to satisfy the condition set forth in Section 8.10 (Group Ruling);

to

then Integrity shall be entitled to a distribution (i.e., return) of one hundred percent (100%) of the
Deposit, and any interest accrued thereon, from the Deposit Escrow Agent.
(e)

This Section 2.4 shall survive termination of the Agreement.

2.5
Concurrent Deliveries. Contemporaneously with the execution and delivery of
this Agreement, (i) Integrity and DCHS shall execute and deliver the Transitional Consulting
Services Agreement; and (ii) Lender shall execute and deliver the Commitment Letter to DCHS.

- 18 -

2.6
Closing Date Payments. At the Closing, by wire transfer of immediately available
funds to the account designated by DCHS on Schedule 2.6, Integrity, Lender, or BlueMountain,
as applicable, shall pay the Contribution Funding and the proceeds under the Debt Facility and,
as of the Closing, such payments shall be applied and used as follows:
(a)
To redeem, prepay, or defease the 2014 Bonds as of the Effective Time in
full to their first option call date in accordance with their governing documents and all fees and
expenses related to the redemption, prepayment, or defeasance and the establishment of the
necessary escrows, the release of all security for the 2014 Bonds, and all other matters incident
thereto;
(b)
To pay the severance and accrued paid-time off of any DCHS Employee
who is terminated as of the Closing Date;
(c)
To pay all of DCHSs transaction costs, including without limitation those
set forth on Schedule 2.6(c); and
(d)
To pay the termination costs for the nonqualified executive retirement
plans set forth on Schedule 2.6(d).
ARTICLE 3
CLOSING
3.1
Closing. Subject to the satisfaction or waiver by the appropriate Party of all the
conditions precedent to Closing specified in Article 8 and Article 9, the closing of the
Transaction under this Agreement (the Closing) will take place at the local office of DCHS
legal counsel (or such other place as the parties may mutually agree) on the seventh Business
Day following the satisfaction or written waiver of the last of the conditions precedent to Closing
as specified in Article 8 and Article 9 to be satisfied prior to Closing (that can be satisfied prior
to Closing), or such earlier or later date as the Parties may mutually agree (the Closing Date).
The Parties agree that the Transaction shall be closed and made effective as of 12:01 a.m.,
Pacific Time, on the Closing Date (the Effective Time). The Parties agree that, absent a
mutually agreed extension, the Closing Date shall occur no later than the date that is nine (9)
months following the Effective Date, or this Agreement and all Transaction Documents shall
terminate and be of no force or effect.
3.2
Actions of Integrity and BlueMountain at Closing. At Closing, or unless
otherwise waived by DCHS in writing:
(a)
Integrity and each BlueMountain Fund shall execute and deliver the
agreements and documents and perform such other actions that are its obligations to execute,
deliver, and perform pursuant to Section 2.1;
(b)
Integrity shall deliver copies of resolutions duly adopted by its general
partner(s), managers, board of directors, or governing body, authorizing and approving its
performance of the Transaction contemplated hereby and its execution and delivery of this
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Agreement and other documents described herein on its part to be executed and delivered, each
certified as true, complete and in full force and effect as of the Closing Date by its appropriate
officer;
(c)
Integrity and each BlueMountain Fund shall deliver a certificate of a duly
authorized officer certifying that each covenant and agreement on its part to be performed prior
to or as of Closing pursuant to this Agreement has been performed in all material respects;
(d)
Integrity shall deliver a certificate of incumbency of the officers of it
executing this Agreement and the other documents described herein on its behalf, dated as of the
Closing Date;
(e)
BlueMountain Capital Management, LLC shall deliver a certificate of
incumbency of the officers or managers of it executing this Agreement and the other documents
described herein on its behalf as the investment manager of each of the BlueMountain Funds,
dated as of the Closing Date;
(f)
Each BlueMountain Fund and Integrity will deliver a certificate of
existence and good standing from their respective jurisdictions of domicile, dated the most recent
practical date prior to the Closing Date;
(g)
Integrity will deliver to DCHS a certificate of status from the California
Secretary of State, dated the most recent practical date prior to the Closing Date, related to its
good standing and qualification to do business as a foreign limited liability company in
California;
(h)
Integrity and each BlueMountain Fund will deliver a certificate of a duly
authorized officer of it certifying that the representations and warranties of it set forth in this
Agreement are true and correct in all material respects as of the Closing Date;
(i)
Integrity will deliver a certificate of insurance evidencing that
commercially reasonable directors and officers liability coverage is in effect for the directors
and officers DCHS and all DCHS Affiliates as of the Effective Time, from a carrier that has the
same or better credit rating as DCHS current D&O Insurance carrier;
(j)
Integrity and the Option Holders will pay the Contribution Funding and
Lender will pay, or cause to be paid, the proceeds under the Debt Facility, all in accordance with
Section 2.6; and
(k)
Integrity and each BlueMountain Fund will each execute and deliver such
other and further instruments and documents as may be reasonably required to consummate the
Transaction herein contemplated in accordance with the terms and conditions hereof.
3.3
Actions of DOCMSC, DCHS, and the DCHS Affiliates at Closing. At Closing, or
unless otherwise stated herein or waived by Integrity and BlueMountain in writing:
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(a)
DOCMSC, DCHS, and the DCHS Affiliates shall each execute and deliver
the agreements and documents and perform the other actions that are its obligations to execute,
deliver, and perform pursuant to Section 2.1;
(b)
DOCMSC and DCHS shall each deliver copies of resolutions duly
adopted by its board of directors authorizing and approving its performance of the Transaction
contemplated hereby and its execution and delivery of this Agreement and other documents
described herein on its part to be executed and delivered, each certified as true, complete and in
full force and effect as of the Closing Date by its appropriate officer;
(c)
DOCMSC shall deliver evidence, in such form as may be reasonably
acceptable to Integrity and BlueMountain, that DOCMSC has resigned and withdrawn as the sole
member of DCHS in accordance with Law, as of the Effective Time;
(d)
DOCMSC and DCHS shall each deliver a certificate of a duly authorized
officer certifying that each covenant and agreement on its part to be performed by it prior to or as
of Closing pursuant to this Agreement has been performed in all material respects;
(e)
DOCMSC and DCHS shall each deliver a certificate of incumbency of the
officers of it executing this Agreement and the other documents described herein on its behalf,
dated as of the Closing Date;
(f)
DOCMSC and DCHS shall each deliver a certificate of status from the
California Secretary of State, dated the most recent practical date prior to the Closing Date,
relating to its good standing;
(g)
DOCMSC and DCHS shall each deliver a certificate of a duly authorized
officer of it certifying that the representations and warranties of it set forth in this Agreement are
true and correct in all material respects as of the Closing Date;
(h)
an assignment and assumption agreement, in such form as may be
reasonably acceptable to Integrity and DOCMSC, shall have been fully executed by DOCMSC,
DCHS, and any DCHS Affiliate then holding an interest in any Retained Assets and delivered to
DOCMSC, pursuant to which the Retained Assets are transferred to DOCMSC; and
(i)
DCHS, DOCMSC, and the DCHS Affiliates will execute and deliver to
such other further instruments and documents as may be reasonably required to consummate the
Transaction herein contemplated in accordance with the terms and conditions hereof.
3.4

Casualty Loss.

(a)
If any material part or portion of the System is damaged, condemned, lost
or destroyed (whether by fire, theft, or other casualty event such as earthquake or natural
disaster, and whether or not such damage, condemnation, loss, or destruction results in or would
be defined as a Material Adverse Event) prior to the Effective Time, DCHS shall notify Integrity
(Casualty Notice) as soon as reasonably practicable of such damage, loss or destruction. The
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Casualty Notice shall set forth DCHSs good faith, reasonable estimate (the Estimate) of the
fair market value of the cost to repair, replace or restore (as applicable) such damage, loss or
destruction, net of any insurance proceeds due to DCHS for such loss (the Aggregate
Damage).
(b)
If there is damage, loss or destruction to the System and the Estimate of
the cost to repair, replace or restore (as applicable) such damage, loss or destruction is greater
than Fifteen Million Dollars ($15,000,000.00), net of any insurance proceeds due DCHS for such
loss (a Material Loss), then Integrity may, within ten (10) Business Days after receipt of the
Casualty Notice, by written notice to DCHS, terminate this Agreement, and secure the return of
the Deposit. The failure of Integrity to so elect in writing to terminate this Agreement within
such ten (10) Business Day period shall be deemed an election not to terminate this Agreement.
(c)
If the Estimate is less than a Material Loss and Integrity objects to the
Estimate, then Integrity shall notify DCHS of such objection (the Integrity Notice) within ten
(10) Business Days after receipt of the Casualty Notice. The Integrity Notice shall indicate
whether Integrity objects to the Estimate and whether Integrity believes that the value of the
Aggregate Damage is in excess of a Material Loss. If the parties are unable to resolve their
disagreement concerning the value of the Aggregate Damage within five (5) Business Days after
DCHS receipt of the Integrity Notice, then they shall promptly agree upon an independent
valuation consultant (the Loss Consultant) who shall, as promptly as possible, determine the
Aggregate Damage and confirm in writing either that the Aggregate Damage is less than a
Material Loss or exceeds a Material Loss. If the Loss Consultants report indicates a Material
Loss, then Integrity may submit a termination notice within ten (10) Business Days after the
receipt of the Loss Consultants report. The failure of Integrity to so elect in writing to terminate
this Agreement within such ten (10) Business Day period shall be deemed an election not to
terminate this Agreement. The Loss Consultants determination shall be final and binding on the
parties. The fees and costs of the Loss Consultant shall be shared equally by Integrity and DCHS.
(d)
If, prior to the Effective Time, any part or portion of the System is
destroyed, lost or damaged, (i) to an extent that does not result in a Material Loss, or (ii) to an
extent that would be a Material Loss and Integrity fails to terminate this Agreement, then the
parties shall consummate the Transaction contemplated in this Agreement, subject to the other
terms and conditions of this Agreement.
(e)
For the avoidance of doubt, this Section 3.4 shall apply regardless of
whether the Material Loss arises or results from a Material Adverse Event.
3.5

Disclaimer of Warranties; Release.

(a)
Except as expressly provided in this Agreement, neither DOCMSC,
DCHS, any DCHS Affiliate nor any DOCMSC Indemnitee (as defined below) has made or does
make, and DOCMSC and DCHS specifically disclaim, any representations, warranties, promises,
covenants, agreements or guaranties of any kind or character whatsoever, whether express or
implied, oral or written, past, present or future, of, as to, concerning or with respect to (i) the
- 22 -

nature, quality, sufficiency or condition of the System; (ii) the income to be derived from the
System; or (iii) the compliance of or by the System with any Law.
For purposes hereof, DOCMSC Indemnitee means (i) any Person who is, has been or as of the
Closing Date will be a corporate member, director, board committee member, fiduciary with
respect to any plan, or corporate officer of DOCMSC, or appointee of the Board of Directors of
DOCMSC or any of DCHS Affiliate, or who at any time held a similar position with respect to
DCHS, any DCHS Affiliate or any DCHS Plan prior to the Closing Date, and any executive
employee thereof in a position of Vice President or higher, and (ii) Daughters of Charity of
St. Vincent de Paul, Province of the West, a California nonprofit religious corporation, and its
Affiliates, and (iii) the Company of the Daughters of Charity of St. Vincent de Paul, a religious
order of the Roman Catholic Church, and any past, present or future member thereof.
(b)
Integrity and BlueMountain each acknowledge, covenant and agree, on
behalf of itself and its Affiliates: (i) that it has completed to its satisfaction its own due diligence
investigation, and based thereon, formed its own independent judgment with respect to the
System and the System; (ii) that it has been furnished with or given full access to such
documents and information about the System, its assets, liabilities and operations as it and its
representatives and advisors have deemed necessary to enable it to make an informed decision
with respect to the execution, delivery and performance of this Agreement and the Transaction;
(iii) that in entering into this Agreement, it has relied solely upon its own investigation and
analysis and the representations, warranties, covenants and agreements set forth in this
Agreement; and (iv) that (A) no representation or warranty has been or is being made by
DOCMSC, DCHS, any DCHS Affiliate or any DOCMSC Indemnitee as to the accuracy or
completeness of any of the information provided or made available to Integrity or BlueMountain
except as expressly set forth in Article 4, and (B) there are uncertainties inherent in attempting to
make estimates, projections, forecasts, plans, budgets and similar materials and information,
Integrity and BlueMountain are familiar with such uncertainties, and Integrity and BlueMountain
are taking full responsibility for making their own evaluations of the adequacy and accuracy of
any and all estimates, projections, forecasts, plans, budgets and other similar materials or
information that may have been delivered or made available to it or any of its respective agents
or representatives, and Integrity and BlueMountain have relied or will rely on such information,
and neither Integrity nor BlueMountain will not assert, and will cause any Affiliate of either of
them not to assert, any claims against DOCMSC or DCHS or any of the DCHS Affiliates or
Released Parties with respect thereto.
(c)
BLUEMOUNTAIN, INTEGRITY, DCHS, THE DCHS AFFILIATES,
AND THEIR RESPECTIVE AFFILIATES AND, TO THE MAXIMUM EXTENT
PERMISSIBLE UNDER APPLICABLE LAW, EACH OF THEIR PAST, PRESENT AND
FUTURE CORPORATE MEMBERS, AFFILIATES, SPONSORS, CONTROLLING
PERSONS,
SHAREHOLDERS,
AND
SUCCESSORS
(COLLECTIVELY,
THE
RELEASORS), HEREBY (i) WAIVE AND RELEASE DOCMSC, ITS AFFILIATES
(EXCLUDING DCHS AND THE DCHS AFFILIATES), THE DOCMSC INDEMNITEES,
AND SUCCESSORS, AND ANY DIRECTORS, OFFICERS, EMPLOYEES (AT THE LEVEL
OF VICE-PRESIDENT OR HIGHER), OF DCHS AND EACH OF ITS AFFILIATES
- 23 -

IMMEDIATELY BEFORE CLOSING (COLLECTIVELY, THE RELEASED PARTIES)


FROM ALL RESPONSIBILITY, CLAIMS, LIENS, DEMANDS, CAUSES AND CAUSES OF
ACTION (INCLUDING ACTION IN TORT), LOSSES, DAMAGES, DEBTS, LIABILITIES,
OBLIGATIONS, INDEMNITIES, AGREEMENTS, PENALTIES, COMPENSATION, COSTS
AND EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS FEES AND
COURT COSTS) OF EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN
(COLLECTIVELY, LOSSES), THAT THE RELEASORS EVER HAD, NOW HAVE OR
MAY CLAIM TO HAVE HAD, ASSERTED OR ALLEGED AGAINST ANY RELEASED
PARTY BY REASON OF, RELATING TO, OR ARISING OUT OF ANY EVENT, ACT OR
OMISSION THAT OCCURRED IN CONNECTION WITH THE OWNERSHIP, CONTROL
OR OPERATION OF THE SYSTEM OR ANY OF THE DCHS AFFILIATES AT ANY TIME
PRIOR TO CLOSING (EXCLUSIVE OF ACTS OR OMISSIONS OF THE RELEASED
PARTY THAT WOULD CONSTITUTE ACTUAL FRAUD, INTENTIONAL TORTS OR
EMPLOYMENT PRACTICES LIABILITY ENGAGED IN BY SUCH RELEASED PARTY,
OR CONTRACTUAL OBLIGATIONS OF THE RELEASED PARTY WITH ANY OF THE
RELEASORS); AND (ii) THE RELEASORS OTHER THAN BLUEMOUNTAIN,
INTEGRITY AND THEIR RESPECTIVE AFFILIATES, WHICH ARE EXPRESSLY
EXCLUDED FROM THIS SUBSECTION 3.5(c)(ii), AGREE TO INDEMNIFY, DEFEND
AND HOLD HARMLESS EACH RELEASED PARTY FROM ANY AND ALL LOSSES
THAT ARE ASSERTED OR ALLEGED AGAINST SUCH RELEASED PARTY ARISING
OUT OF EVENTS, CONTRACTUAL OBLIGATIONS OF THE SYSTEM OR ITS
AFFILIATES, ACTS OR OMISSIONS THAT OCCURRED IN CONNECTION WITH THE
OWNERSHIP, CONTROL OR OPERATION OF THE SYSTEM PRIOR TO THE CLOSING
DATE (EXCLUSIVE OF PERSONAL OBLIGATIONS OF THE RELEASED PARTY TO
THE SYSTEM OR ACTS OR OMISSIONS OF THE RELEASED PARTY RELATED TO
THE TRANSACTION THAT WOULD CONSTITUTE ACTUAL FRAUD ENGAGED IN BY
SUCH RELEASED PARTY). The Releasors (including BlueMountain and Integrity) expressly
waive any and all rights they may have against the Released Parties under Section 1542 of the
California Civil Code (Section 1542), and the Releasors acknowledge that they may not invoke
the benefits of Section 1542 against the Released Parties in order to prosecute or assert in any
manner any claims released in this Agreement. Integrity and BlueMountain are aware that
Section 1542 provides as follows: [a] general release does not extend to claims which the
creditor does not know or suspect to exist in his or her favor at the time of executing the release,
which if known by him or her must have materially affected his or her settlement with the
debtor. Each person released or indemnified under this Section 3.5 that is not a Party is an
intended third party beneficiary of this Section 3.5. This Section 3.5 shall be irrevocable, and no
term of this Section 3.5 may be amended, waived or modified without the prior written consent
of DOCMSC and any Released Party affected thereby
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF DCHS
Except as set forth in the disclosure schedules delivered by DCHS to Integrity and
BlueMountain in accordance with the terms of this Article 4, including any documents attached
to or incorporated by reference in such disclosure schedules (the Disclosure Schedules), DCHS
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hereby represents and warrants to Integrity and to BlueMountain that the statements contained in
this Article 4 are true and correct as of the date hereof, except to the extent that any such
representation and warranty expressly relates to any other specified date or time (including those
that speak only as to the date hereof).
4.1
Existence and Corporate Capacity. DCHS is a nonprofit religious corporation
which is duly organized, validly existing, in good standing, and authorized to transact business in
the State of California. DCHS and DOCMSC each has the requisite power and authority to enter
into this Agreement, perform its obligations hereunder and to conduct its activities as now being
conducted. DCHS and the DCHS Affiliates are each duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of organization, and DCHS and the DCHS
Affiliates each have the power and authority to conduct their respective activities as now being
conducted.
4.2
Powers; Consents; Absence of Conflicts with Other Agreements. The execution,
delivery and performance of this Agreement by DCHS and DOCMSC and all other agreements
referenced herein or ancillary hereto to which DCHS, DOCMSC, or the DCHS Affiliates is a
party and the consummation of the transactions contemplated herein by DCHS, DOCMSC, and
any DCHS Affiliate: (a) are within its corporate powers, are not in contravention of Law or of its
governing documents, or any amendments thereto and have been duly authorized by all
necessary corporate action; (b) do not require any material approval or consent of, or filing with,
any Governmental Entity or authority bearing on the validity of this Agreement except as set
forth on Schedule 4.2(b) or as may be required under the HSR Act and any other applicable
antitrust Laws; (c) subject to any required consent or waiver, will neither conflict with nor result
in any material breach or contravention of, nor permit the acceleration of the maturity of the
material Contracts, except as would not result in a Material Adverse Effect and excluding from
the scope of this clause (c) the Effect of the Transaction on the Tax Status of DCHS, or except as
set forth on Schedule 4.2(c) (the Contracts set forth on Schedule 4.2(c) being the Mission
Critical Contracts); (d) will not violate any statute, Law, rule or regulation of any
Governmental Entity to which DCHS is subject; and (e) will not violate any judgment of any
court or Governmental Entity to which DCHS is subject.
4.3
Binding Agreement. Assuming the due execution and delivery of this Agreement
by Integrity and BlueMountain, this Agreement constitutes the valid and legally binding
obligation of DCHS and DOCMSC, and is enforceable against DCHS and DOCMSC in
accordance with its terms, except as enforceability may be restricted, limited or delayed by
applicable bankruptcy or other laws affecting creditors rights generally and except as
enforceability may be subject to general principles of equity (collectively, the Enforceability
Exceptions).
4.4
Financial Statements. As of Closing, DCHS has delivered to Integrity and
BlueMountain copies of the following financial statements of the System on an accrual-basis (the
Financial Statements): (a) unaudited balance sheet dated not more than thirty (30) days prior to
Closing (the Balance Sheet Date); (b) unaudited income statement for the twelve month period
ending on the Balance Sheet Date; and (c) audited consolidated balance sheet and income
statement for the fiscal years of DCHS ended on June 30, 2015, June 30, 2014 and June 30,
- 25 -

2013, respectively, provided that the 2015 audited consolidated balance sheet and income
statement for the fiscal year of DCHS ended on June 30, 2015 are prepared in the ordinary
course and copies have been delivered to Integrity and BlueMountain only if they have been
completed and delivered to DCHS by its external auditor. Such unaudited Financial Statements
materially conform to GAAP practices in the United States, consistently applied, except as to the
absence of footnotes and normal audit adjustments and as otherwise may be set forth in
Schedule 4.4 (GAAP Exceptions). The Financial Statements are complete and present fairly in
all material respects the financial position of DCHS and the System and the results of its
operations, changes in net assets and cash flows at the dates and for the periods indicated, in
conformity with GAAP applied consistently for the periods specified (with the exception of any
GAAP Exceptions).
4.5
Licenses. DCHS and the DCHS Affiliates have all Licenses and Permits from any
Governmental Entity which are required by Law to operate the System other than such Licenses
and Permits the absence of which, individually or in the aggregate, has not had and would not
reasonably be expected to have a Material Adverse Effect. DCHS has delivered to Integrity and
BlueMountain a copy of all known material Licenses and Permits owned or held by DCHS and
the DCHS Affiliates relating to the ownership, development or operations of the System.
4.6
Medicare and Medi-Cal Participation. The Hospitals and any other DCHS
Affiliate that participates in Medicare is qualified for participation in the Medicare and Medi-Cal
programs, has current and valid provider contracts with the Medicare and Medi-Cal programs,
are in compliance with the conditions of participation in such programs, except for instances of
noncompliance that, individually or in the aggregate, have not had and would not reasonably be
expected to have a Material Adverse Effect. Since January 1, 2012, except as may be disclosed
in Schedule 4.6, neither DCHS nor any of its Affiliates have received any written notice from
either the Medicare or Medi-Cal programs of any pending or threatened investigations or
surveys. DCHS has provided to Integrity complete and correct copies of the all Medicare cost
reports relating to the System for the fiscal year ended on June 30, 2014.
4.7

Compliance with Laws.

(a)
DCHS and the DCHS Affiliates are in material compliance with all
applicable Laws, including the Health Care Laws, except for instances of noncompliance that,
individually or in the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect and excluding from the scope of this 4.7(a) the Effect of the Transaction
on the Tax Status of the Bonds.
(b)
To the Knowledge of DCHS, no action is pending or threatened or
recommended by any Governmental Entity to terminate or decertify any participation of any
Hospital in the Medicare, Medicaid or any other third party payor programs nor has there been
any decision not to renew any provider agreement related to any DCHS Affiliate except as set
forth on Schedule 4.7(b). With the exception of deficiencies that are currently the subject of
waiver and those of which are the subject of a plan of correction (each set forth on
Schedule 4.7(b)), there are no material outstanding written notices of deficiencies or written
- 26 -

notices of work orders of a material nature of any Governmental Entity having jurisdiction over
any DCHS Affiliate, including the Medicare and Medi-Cal programs.
(c)
To the Knowledge of DCHS, all billing practices of each DCHS Affiliate
with respect to the System to all third party payors, including the Medicare and Medi-Cal
programs and private insurance companies, are in compliance in all material respects with all
applicable laws, regulations and policies of such third party payors and the Medicare and MediCal programs. No DCHS Affiliate has been excluded from participation in the Medicare or
Medicaid program nor is any such exclusion threatened except as set forth on Schedule 4.7(c).
To the Knowledge of DCHS, no employee or independent contractor of DCHS or the DCHS
Affiliates (whether an individual or entity) has been excluded from participating in any federal
health care program (as defined in 42 U.S.C. 1320a-7b(f)) except as set forth on
Schedule 4.7(c). To the Knowledge of DCHS, none of the officers, directors or managing
employees (as such term is defined in the Medicare Program Integrity Manual) of DCHS or any
DCHS Affiliate has been excluded from participation in the Medicare or Medicaid programs or
been subject to sanction pursuant to 42 U.S.C. 1320a-7a or 1320a-8 or been convicted of a
crime described at 42 U.S.C. 1320a-7b.
(d)
To the Knowledge of DCHS, none of the officers, directors or managing
employees (as such term is defined in the Medicare Program Integrity Manual) of DCHS or any
DCHS Affiliate is now or has in the past been subject to or bound by a corporate integrity
agreement with the United States Department of Health and Human Services Office of the
Inspector General or other similar agreement (e.g., deferred prosecution agreement) with any
Governmental Entity except as set forth on Schedule 4.7(d).
4.8
Contracts. DCHS has delivered to Integrity and BlueMountain an accurate list of
(a) all Contracts providing for annual payments in excess of One Hundred Thousand Dollars
($100,000) which affect the System or the operation thereof, to which DCHS (or one of the
DCHS Affiliates) is bound, (b) all Contracts between DCHS (or one of the DCHS Affiliates) and
a person or entity in a position to make or influence referrals to the Hospitals or any DCHS
Affiliate offering or providing healthcare goods or services, and (c) all Collective Bargaining
Agreements and contracts with labor unions to which DCHS or any of the DCHS Affiliates are
bound. To DCHS Knowledge, DCHS has provided Integrity and BlueMountain with complete
and correct copies of all such contracts, together with all amendments and modifications.
4.9

Environmental Matters.

(a)
DCHS has provided Integrity and BlueMountain with the Phase I
Environmental Site Assessments for the Real Property (the Environmental Survey).
(b)
Except as disclosed on Schedule 4.9(b), to the Knowledge of DCHS the
operations of the System are not in material violation of any applicable limitations, restrictions,
conditions, standards, prohibitions, requirements and obligations of Environmental Laws and
related orders of any court or other Governmental Entity.

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(c)
There are no pending or, to the Knowledge of DCHS, threatened actions,
suits, claims, investigations, inquiries or proceedings by or before any court or any other
Governmental Entity directed against DCHS (or any of the DCHS Affiliates) that pertain or
relate to (i) any material remedial obligations under any applicable Environmental Laws, (ii)
material violations by DCHS (or any of the DCHS Affiliates) of any Environmental Laws, or
(iii) material personal injury or property damage claims relating to a release of or exposure to
Hazardous Materials.
4.10

Real Property.

(a)
Schedule 4.10(a) sets forth a list of all of the real property that is owned
by DCHS and any DCHS Affiliate, including, without limitation, the real property that is used
with respect to the operation of the System, together with all buildings, improvements and
fixtures located thereupon, including, without limitation, all buildings and other improvements
then under construction (the Real Property). Except as set forth on Schedule 4.10(a), DCHS
and the DCHS Affiliates now own fee simple title to all of the Real Property free and clear of
any and all Encumbrances other than the Permitted Exceptions.
(b)
Except as set forth on Schedule 4.10(b), DCHS has not received any
written notice and, to the Knowledge of DCHS, there are no proceedings or actions pending to
change the zoning of, or other land use (including parking) restrictions affecting, the Real
Property. DCHS has not received any written notice of any proceeding pending before any
Governmental Entity relating to the Real Property and, to DCHS Knowledge, there is no study
or investigation pending or threatened by any Governmental Entity relating to the Real Property.
(c)
Schedule 4.10(c) sets forth an accurate and complete list of all real
property leases, subleases, licenses and occupancy agreements, options or commitments, oral or
written, pursuant to which either DCHS or any of the DCHS Affiliates is a licensor, licensee,
lessor, lessee, sublessor, or sublessee, including, without limitation, all retail and office space
leases, specifying the interest of DCHS or the DCHS Affiliate, but excluding any real property
lease consummated as part of the transactions contemplated herein and the Lease Agreement
between Daughters of Charity of St. Vincent de Paul, Province of the West and DCHS dated
October 1, 2001 for the building at 26000 Altamont Road, Los Altos Hills, California
(collectively referred to as the Real Estate Leases). DCHS has provided Integrity with
complete and correct copies of all Real Estate Leases, together with all amendments and
modifications.
(d)
Each Real Estate Lease is a legal, valid, binding, obligation of DCHS or a
DCHS Affiliate, enforceable against either DCHS or the DCHS Affiliate, as applicable, in
accordance with its terms. Each Real Estate Lease is the legal, valid and binding obligation of the
other party thereto, enforceable against such other party in accordance with its terms. Each Real
Estate Lease is in full force and effect. To the Knowledge of DCHS, no event or condition has
occurred that with the passage of time or the giving of notice (or both) would constitute a
material default or breach of the terms of any Real Estate Lease.

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(e)
Neither the whole nor any portion of the Real Property has been
condemned, requisitioned or otherwise taken by any public authority (a Public Taking), and no
written notice of any Public Taking has been received by DCHS with regard to any portion of the
Real Property. No public improvements have been ordered to be made that have not heretofore
been assessed, and no special, general or other assessments are pending or, to DCHS
Knowledge, have been threatened against or will affect the Real Property.
(f)
Except as disclosed on Schedule 4.10(f), DCHS has not received any
written notice and DCHS has no Knowledge of any unsatisfied requests for repairs, restorations,
or improvements to the Real Property from any Governmental Entity or insurance company or
provider.
4.11 Litigation or Proceedings. DCHS has delivered to Integrity and BlueMountain an
accurate list and summary description (Schedule 4.11) of all material litigation or proceedings
with respect to the System to which DCHS or any DCHS Affiliate is a party. Except as set forth
on Schedule 4.11, there are no claims, actions, suits, proceedings or investigations pending, or to
the Knowledge of DCHS, threatened against or affecting DCHS or any DCHS Affiliate with
respect to the System, at law or in equity, or before or by any Governmental Entity in which an
adverse determination would have a Material Adverse Effect.
4.12 Medical Staff Matters. DCHS has delivered to Integrity and BlueMountain true,
correct and complete copies of the medical staff bylaws and rules and regulations of the medical
staff of each Hospital. With regard to each medical staff, and except as set forth on
Schedule 4.12, there are no pending or, to the Knowledge of DCHS, threatened disputes with
applicants, staff members or health professional affiliates other than such disputes that occur in
the ordinary course of business. To the Knowledge of DCHS, no member of the medical staff of
any Hospital is currently excluded from participation in any state or federal Medicare or
Medicaid programs except as set forth on Schedule 4.12.
4.13

Tax Liabilities.

(a)
DCHS is a corporation exempt from federal income taxation under
Section 501(c)(3) of the Code, and is not a private foundation within the meaning of
Section 509(a) of the Code. DCHS is a corporation exempt from California state income
taxation. OConnor Hospital, Saint Louise Regional Hospital, St. Francis Medical Center, St.
Vincent Medical Center, Seton Medical Center, St. Vincent de Paul Ethics Corporation, St.
Vincent Dialysis Center, Inc., Caritas Business Services, DCHS Medical Foundation, and each
of the Philanthropic Foundations (there being no other subsidiaries of the foregoing), are exempt
from federal income taxation as organizations described under Section 501(c)(3) of the Code and
are exempt from California state income taxation. Except as set forth on Schedule 4.13(a), all
Tax Returns required to be filed by or on behalf of, or with respect to DCHS or the DCHS
Affiliates have been duly and timely filed. All such Tax Returns were correct and complete in all
material respects, and were filed or will be filed within the time and in the manner provided by
applicable Law (including any valid extensions thereof), and Tax liabilities of DCHS and the
DCHS Affiliates, if any, shown thereon have been paid by DCHS or the DCHS Affiliates.
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(b)
Except as set forth on Schedule 4.13(b), DCHS has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or owing to any
employee, creditor or other third party.
4.14

Employee Benefits.

(a)
Schedule 4.14(a) contains a list of (i) each pension, profit sharing, bonus,
deferred compensation, or other retirement plan or arrangement of DCHS and its Affiliates,
whether oral or written, which constitutes an Employee Pension Benefit Plan, (ii) each medical,
health, disability, insurance or other plan or arrangement of DCHS and its Affiliates, whether
oral or written, which constitutes an Employee Welfare Benefit Plan, and (iii) each other material
employee benefit, bonus, incentive, deferred compensation, severance, change in control, fringe
benefit, performance or retention plan, in each case, that is maintained, contributed to or
provided by DCHS and its Affiliates and that covers any current or former officers, directors,
employees, independent contractors or consultants of DCHS and its Affiliates (collectively, the
DCHS Plans).
(b)
DCHS has made available to the Integrity and BlueMountain true,
complete and correct copies of (i) each DCHS Plan (or, in the case of any unwritten DCHS Plan,
a description thereof); (ii) the most recent annual report on Form 5500 filed with the Internal
Revenue Service with respect to each DCHS Plan (if any such report was required); (iii) the most
recent summary plan description for each DCHS Plan for which such summary plan description
is required; and (iv) each trust agreement and group annuity contract relating to any DCHS Plan,
if any.
(c)
Except as otherwise provided on Schedule 4.14(c), to the Knowledge of
DCHS, DCHS does not have any direct or indirect, actual or contingent liability with respect to
any DCHS Plan, other than to make payments for contributions, premiums or benefits when due
in the ordinary course of business, all of which payments that are due having been made. The
Hospitals are not subject to any Encumbrance under ERISA or the Code.
(d)
All of the DCHS Plans have been administered in material compliance
with ERISA and the Code, to the extent applicable. Notwithstanding the foregoing, in the event
that it is determined by an authoritative ruling by the Internal Revenue Service or Department of
Labor, or a decision by a court of competent jurisdiction, that any of Defined Benefit Church
Plan, Defined Contribution Church Plans or Employee Welfare Benefit Plans failed to qualify as
a non-electing church plan as defined in Section 3(33) of ERISA and Section 414(e) of the
Code, the failure of DCHS to maintain or administer such plan in accordance with provisions of
ERISA and the Code not applicable to church plans shall not constitute a breach of this
Section 4.14(d) or any other provision of the Agreement (including without limitation the last
sentence of Section 4.14(c)).
(e)
Except as otherwise provided on Schedule 4.14(e), no DCHS Plan
provides retiree medical or other retiree welfare benefits to any Person (other than health care
continuation coverage as required by the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, or analogous state law).
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4.15

Personnel.

(a)
Schedule 4.15(a) sets forth a complete list (as of the date set forth therein
and updated as of the Closing) of names, positions and current annual base salaries or base wage
rates, paid bonuses (including retention bonuses), and the accrued paid time off pay of all
employees of DCHS and its Affiliates shortly prior to the Effective Date, whether such
employees are full time employees, part-time employees, on short-term or long-term disability or
on leave of absence pursuant to DCHS policies, the Family and Medical Leave Act of 1993 or
other similar Laws (the DCHS Employees). Schedule 4.15(a) also indicates whether each such
DCHS Employee is a part-time or full-time employee. DCHS shall update Schedule 4.15(a) to
reflect changes in employment status and/or new hires and terminations occurring after the
Effective Date by providing a revised schedule to Integrity and BlueMountain no later than five
(5) Business Days before the date scheduled for Closing.
(b)
Except as listed in Schedule 4.15(b), there is no unfair labor practice
complaint against DCHS pending, or to the Knowledge of DCHS threatened, before the National
Labor Relations Board with respect to the operation of the Hospitals that would have a Material
Adverse Effect, and there is no labor strike, arbitration, dispute, slowdown or stoppage, and no
union organizing campaign, pending or, to the Knowledge of DCHS, threatened, by or involving
the DCHS Employees, that would have a Material Adverse Effect.
(c)
Except as provided in Schedule 4.15(c), to the Knowledge of DCHS,
since January 1, 2012 (i) DCHS and its Affiliates have substantially complied with all applicable
Laws relating to employee health and safety in all material respects, and (ii) neither DCHS nor
any of its Affiliates have received any written notice from any Governmental Entity that past or
present conditions of the Hospitals violate any applicable Laws or otherwise will be made the
basis of any claim, proceeding, or investigation based on violations of the Occupational Safety
and Health Act of 1970 or otherwise related to employee health and safety.
4.16 Insurance. Schedule 4.16 sets forth a list of all material insurance policies
currently held by DCHS (or any of its Affiliates) with respect to the System, as well as any selfinsurance trust or captive insurance companies (the Insurance Policies). To the Knowledge of
DCHS, DCHS and its Affiliates are in material compliance with the terms of the Insurance
Policies, and such Insurance Policies are in full force and effect. Except as set forth on
Schedule 4.16, to DCHS Knowledge, neither DCHS nor any of its Affiliates are (a) delinquent
with respect to any premium payments thereon or (b) in default or breach with respect to any
material provision contained in the Insurance Policies.
4.17 Accounts Receivable. To the Knowledge of DCHS, all outstanding accounts
receivable of the System have arisen from bona fide transactions in the ordinary course of
business and are collectible in the ordinary course of business in accordance with their terms.
None of the accounts receivable are subject to any counterclaims, discounts or set off, and all
reserves against such accounts receivable are adequate and consistent with the reserves
previously maintained by DCHS in the ordinary course of business. None of the accounts
receivable of DCHS or any of its Affiliates has been sold to any third party.
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4.18 U.S. Persons. Neither DCHS nor DOCMSC is a foreign person for purposes of
Section 1445 of the Code or any other Laws requiring withholding of amounts paid to foreign
persons or entities.
4.19 Cost Reports. Notices of program reimbursement or similar notices of settlement
have been issued with respect to the cost reports of each acute care hospital of DCHS for
Medicare and Medi-Cal for all fiscal years ending on or prior to June 30, 2003. Except as
disclosed on Schedule 4.19, (a) all necessary cost reports for each acute care hospital of DCHS
were filed when due for all fiscal years ending on or prior to June 30, 2014, and (b) to the
Knowledge of DCHS, there are no facts or circumstances that would give rise to any material
disallowance under any of the Hospitals cost reports.
4.20 Information. To the Knowledge of DCHS, which for the purposes of this Section
only shall not require or include any requirement for inquiry, no representation or warranty of
DCHS contained in this Agreement, and no statement contained in any schedule furnished hereto
or to be furnished by or on behalf of DCHS or any of its representatives pursuant to this
Agreement, contains any untrue statement of a material fact in light of the circumstances under
which it was or will be made, in order to make the statements herein or therein not materially
misleading, or in order to fully and fairly provide the information required to be provided in any
such schedule.
ARTICLE 5
REPRESENTATION AND WARRANTIES OF INTEGRITY AND BLUEMOUNTAIN
Except as set forth in the Disclosure Schedules, Integrity and each BlueMountain Fund
(on behalf of itself and its Affiliates, with recognition of the knowledge and experience of their
respective agents and representatives) hereby represents and warrants to DOCMSC and to DCHS
that the statements contained in this Article 5 are true and correct as of the date hereof, except to
the extent that any such representation and warranty expressly relates to any other specified date
or time (including those that speak only as to the date hereof).
5.1
Organization and Authorization of Integrity and BlueMountain. Each
BlueMountain Fund and each special purpose vehicle owned by any BlueMountain Fund for
purposes of this Agreement is duly organized, validly existing and authorized to transact
business in the jurisdictions where it is present, and Integrity is a Delaware limited liability
company duly organized, validly existing and with active status under the laws of the State of
California. Integrity and each BlueMountain Fund has the requisite power and authority to
execute, deliver and enter into this Agreement and the other documents contemplated hereby and
thereby, perform its obligations hereunder and thereunder.
5.2
Corporate Authority; Absence of Conflicts with Other Agreements. The
execution, delivery and performance of this Agreement and the other documents contemplated
hereby by Integrity and each BlueMountain Fund and each special purpose vehicle owned by any
BlueMountain Fund for purposes of this Agreement , and the consummation by Integrity, such
BlueMountain Fund and such special purpose vehicle of the Transaction contemplated hereby:
(a) have been duly and validly authorized by all necessary action, respectively, are not in
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contravention of Law or of the terms of any governing instruments, partnership agreement or


similar organizational documents of Integrity, such BlueMountain Fund or such special purpose
vehicle, as appropriate, and have been duly authorized by all appropriate partnership, corporate
or company action, as appropriate; (b) will not violate, conflict with or constitute on the part of
Integrity, such BlueMountain Fund or such special purpose vehicle a breach or a default under
any existing Law or any agreement, indenture, mortgage or lease to which Integrity, any
BlueMountain Fund or such special purpose vehicle may be subject; and (c) will not violate any
order or judgment of any Governmental Entity to which Integrity may be subject.
5.3
Binding Obligations. This Agreement and any other agreements or instruments to
which Integrity, a BlueMountain Fund or any special purpose vehicle owned by any
BlueMountain Fund for purposes of this Agreement will become a party pursuant hereto
constitute or will constitute the valid and legally binding obligation of each of Integrity, the
BlueMountain Funds and such special purpose vehicle, as appropriate, and are or will be
enforceable against it in accordance with the terms hereof or thereof, except as enforceability
against Integrity, such BlueMountain Fund or such special purpose vehicle may be restricted or
limited by any or all of the Enforceability Exceptions.
5.4
Legal Proceedings. There are no claims, proceedings or investigations pending or,
to the Knowledge of Integrity or any BlueMountain Fund, threatened, which would either have a
Material Adverse Effect on Integritys or any of the BlueMountain Funds ability to consummate
the Transaction. None of Integrity or the BlueMountain Funds is subject to any order of any
Governmental Entity that would have a Material Adverse Effect on Integritys or such
BlueMountain Funds ability to consummate the Transaction. Each of Integrity and the
BlueMountain Funds are in substantial compliance with respect to any order of any
Governmental Entity the noncompliance with which could reasonably be expected to have a
Material Adverse Effect on Integritys or such BlueMountain Funds ability to consummate the
Transaction.
5.5
Ability to Perform. BlueMountain and Lender, as applicable, shall have
immediately available funds in cash (exclusive of any unrestricted cash of DCHS), plus
borrowing availability under credit facilities or other debt, in amounts sufficient, as of the
Closing Date, (a) to pay at Closing the proceeds under the Debt Facility, (b) to pay any other
amounts on its part payable prior to or at Closing pursuant to this Agreement and each agreement
or document contemplated hereby, and (c) to consummate the Transaction. Integrity and the
Option Holders shall have immediately available funds in cash (inclusive of any restricted cash
of DCHS), plus borrowing availability under credit facilities or other debt, in amounts sufficient,
as of the Closing Date, (a) to, collectively, pay at Closing the Contribution Funding, (b) to pay
any other amounts on its or their part payable at Closing pursuant to this Agreement and each
ancillary agreement or document contemplated hereby, and (c) to consummate the Transaction.
5.6
Required Consents. No material approval by any Governmental Entity is
necessary or required for the execution and delivery of this Agreement by Integrity or, to the
Knowledge of BlueMountain, BlueMountain or for the consummation by Integrity or
BlueMountain of the Transaction, except for such approvals as set forth in Schedules 6.4(b),
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7.1(a)(ii) and 7.1(a)(iii), or as may be required under the HSR Act, and any other applicable
antitrust Laws.
5.7
Integritys and BlueMountains Experience and Investigation. Integrity,
BlueMountain, and the professionals and advisers consulted by the BlueMountain Funds,
collectively have extensive knowledge and experience in financial, regulatory and business
matters relating to owning and operating general acute care hospitals. Each has reviewed all
information it deems necessary to its satisfaction with respect to the System. Each has relied
solely upon its own investigation of the business, assets, risks and prospects of the System
(which, except as herein provided, it has completed prior to entering into this Agreement) and
those express representations and warranties of DCHS made in this Agreement or in any
instrument or document delivered by DCHS pursuant to this Agreement. Each of Integrity and
BlueMountain acknowledges that neither DCHS nor any of its officers, directors, employees,
representatives, Affiliates or agents assumes any responsibility for the accuracy or adequacy of
any information heretofore or hereafter furnished to Integrity or BlueMountain by or on behalf of
DCHS with respect to the System, except as expressly provided in this Agreement and the
Disclosure Schedules. Without limiting the generality of the foregoing, each of Integrity and
BlueMountain understands that any cost estimates, projections or other forward-looking
information provided to it by or on behalf of DCHS are not and shall not be deemed to be
representations and warranties of DCHS, except to the extent reflected in the express
representations and warranties of DCHS made in this Agreement or in any instrument or
document delivered by DCHS pursuant to this Agreement. Except with respect to the express
representations and warranties of DCHS made in this Agreement or in any instrument or
document delivered by DCHS pursuant to this Agreement, Integrity and BlueMountain
acknowledge that (a) there are uncertainties inherent in attempting to make such estimates,
projections and other predictions; (b) each is familiar with such uncertainties; and (c) each is
taking full responsibility for making its own evaluation of the adequacy and accuracy of all
estimates, projections or other predictions so furnished to it.
5.8
Solvency. Each of Integrity and each BlueMountain Fund is solvent and will not
be rendered insolvent as a result of any of the Transaction contemplated by this Agreement. For
purposes hereof, the term solvency means that: (a) the fair salable value of its tangible assets is
in excess of the total amount of its liabilities (including for purposes of this definition all
liabilities, whether or not reflected on a balance sheet prepared in accordance with generally
accepted accounting principles, and whether direct or indirect, fixed or contingent, secured or
unsecured, and disputed or undisputed); (b) it is able to pay its debts or obligations in the
ordinary course as they mature; and (c) it has capital sufficient to carry on its businesses and all
businesses which it is about to engage, including, without limitation, adequate working capital to
operate the System following the Closing.
5.9

Health Care Compliance.

(a)
Each of Integrity and BlueMountain is in material compliance with all
applicable Laws, including the Health Care Laws, except for instances of noncompliance that,
individually or in the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on Integritys ability to consummate the Transaction.
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(b)
To the Knowledge of each of Integrity and BlueMountain, no action is
pending or threatened or recommended by any Governmental Entity to terminate or decertify any
participation by it or any Affiliate of it in the Medicare, Medicaid or any other third party payor
programs, nor has there been any decision not to renew any provider agreement related to any
hospital owned and operated by Integrity.
(c)
No hospital owned, operated, or managed by Integrity or BlueMountain
has been excluded from participation in the Medicare or Medicaid program nor is any such
exclusion threatened. To the Knowledge of each of Integrity and BlueMountain, no employee or
independent contractor of it or its Affiliates (whether an individual or entity) has been excluded
from participating in any federal health care program (as defined in 42 U.S.C. 1320a-7b(f)). To
the Knowledge of BlueMountain and Integrity, none of the officers, directors or managing
employees (as such term is defined in the Medicare Program Integrity Manual) of it has been
excluded from participation in the Medicare or Medicaid programs or been subject to sanction
pursuant to 42 U.S.C. 1320a-7a or 1320a-8 or been convicted of a crime described at 42 U.S.C.
1320a-7b.
(d)
To the Knowledge of each of Integrity and BlueMountain, none of its
officers, directors or managing employees (as such term is defined in the Medicare Program
Integrity Manual) is now or has in the past been a named party to a corporate integrity agreement
with the United States Department of Health and Human Services Office of the Inspector
General or other similar agreement (e.g., deferred prosecution agreement) with any
Governmental Entity.
5.10 No Brokers Fees. Except set forth on Schedule 5.10, neither BlueMountain nor
Integrity has employed any investment banker, broker, finder, agent, or other intermediary in
connection with the negotiation or consummation of this Agreement or the Transaction.
ARTICLE 6
COVENANTS OF DCHS
6.1
Mitigation Plans and Performance Improvement Plan. From the Effective Date
until the earlier of the Closing Date or termination of this Agreement, (a) DCHS will, and will
cause the System and the DCHS Affiliates to, implement and abide by the Mitigation Plans
attached hereto as Exhibit G (collectively, the Mitigation Plans), and (b) the Parties will each
use commercially reasonable efforts to implement the steps set forth in the Performance
Improvement Plan attached hereto as Exhibit H (the Performance Improvement Plan). In
connection with that effort, DCHS will expect that all employees of DCHS and the DCHS
Affiliates use commercially reasonable efforts to implement the Performance Improvement Plan.
All costs and expenses incurred by DCHS and Integrity in carrying out their respective
obligations under the Performance Improvement Plan shall be paid out of the Deposit as set forth
in Section 2.4(b); provided, however, that, with respect to Integrity, such payments out of the
Deposit or other reimbursement shall not exceed an amount equal to $10,000,000 in the
aggregate.

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6.2
Operation. Prior to Closing, except as set forth in the Mitigation Plans,
Performance Improvement Plan, or as contemplated by Section 2.2 or Section 2.6, or otherwise
with Integritys prior written approval (which approval will not to be unreasonably withheld,
conditioned or delayed), DCHS will cause the business of the System (including the Hospitals)
to be carried on in the ordinary course and will not make or permit any material change in the
operations of the System (including the Hospitals) or the assets, interests, or obligations of the
System, or any change in any of the governing documents of the DCHS Affiliates. Without
limiting the foregoing, from the Effective Date until the earlier of the Closing Date and
termination of this Agreement, DCHS shall and shall cause the DCHS Affiliates to:
(a)
carry on their respective businesses, including operation of the System,
consistently with applicable Laws and in substantially the same manner as presently conducted
and not make any material change in personnel, operations, finance, accounting policies or
practices (unless they are required to adopt such changes under GAAP), Tax elections or Tax
returns or real or personal property;
(b)
not sell, transfer, or convey any assets of the System except for the
Retained Assets or any other assets of the System that, individually or in the aggregate, having a
fair market value greater than $250,000.00;
(c)
maintain in effect the insurance and equipment replacement coverage as in
effect on the Effective Date;
(d)
maintain the System and all parts thereof in good operating condition and
repair in a manner consistent with past practices, ordinary wear and tear excepted;
(e)
perform all of its material obligations under material Contracts relating to
or affecting the System and its operations, including but not limited to Mission Critical
Contracts, Bonds, and agreements with physicians and physician groups;
(f)
use reasonable efforts to preserve intact the business organization and
relationships of DCHS and DCHS Affiliates with third parties (including, but not limited to,
lessors, lessees, licensors, suppliers, distributors, unions, physicians and physician groups, and
patients) and DCHS Employees; and
(g)
permit the payment of any retention bonus agreed to prior to the Effective
Date as listed on Schedule 6.2(g) and provide reasonable compensation, including reasonable
retention bonuses, which retention bonuses collectively in the aggregate will not exceed One
Million Dollars ($1,000,000), to certain DCHS Employees in order to retain such DCHS
Employees as DCHS deems necessary in order to effectively operate the Hospitals, DCHS or any
Affiliate of DCHS;
(h)
subject to Section 7.6, administer its labor relations (including contract
administration, grievances and arbitration, and collective bargaining) and employment matters in
the ordinary course of business; and
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(i)
DCHS covenants that, from the period of payments due beginning
November 1, 2015 through the end of the fiscal year ending 2016, debt service on 2005 Bonds
will be paid from Irrevocable Deposits (as defined in the Master Indenture) and that DCHS will
fund such Irrevocable Deposits through timely transfers in a manner consistent with past
practices. This subsection (i) shall not apply to Guaranties (as such term is defined in the Master
Indenture).
6.3
Negative Covenants. From and after the Effective Date until the earlier of the
Closing Date and the termination of this Agreement, and except as expressly contemplated
hereby, without the prior written consent of Integrity, which consent shall not be unreasonably
withheld, conditioned or delayed, DOCMSC and DCHS shall not take or permit any other DCHS
Affiliate to take any of the following actions:
(a)
amend the charter, bylaws, operating agreement or any other governance
documents of DCHS or any DCHS Affiliate;
(b)

merge or consolidate DCHS or any DCHS Affiliate with any other Person;

(c)
increase any benefits under any DCHS Plans or increase the compensation
payable or paid, whether conditionally or otherwise, to any DCHS Employee or other employee
of any DCHS Affiliate, other than any such increase in benefits or compensation required by
Law, required pursuant to the terms of an existing DCHS Plan or an existing employment,
consulting, indemnification, change of control, severance, retention or similar agreement with
any current or former director, officer, employee or consultant of the System or otherwise
provided in the ordinary course of business consistent with past practice;
(d)
Other than the nonqualified executive retirement plans which may be
terminated effective as of the Closing, or may be frozen at to future accruals to the extent the
plan has not already been frozen, and except as may otherwise be required pursuant to the terms
and conditions of this Agreement or as may otherwise be required under applicable law,
materially establish, adopt, enter into, amend or materially terminate any Employee Pension
Benefit Plan, Employee Welfare Benefit Plan or any plan, agreement, program, policy, trust,
fund or other arrangement that would be a DCHS Plan if it were in existence on the date hereof
or change in any material respect any employment practices or policies;
(e)
sell, lease, license or otherwise dispose of any of the material assets of the
System, except as permitted under Section 6.2(b);
(f)
enter into any transaction with DOCMSC, DCHS, or any of their
respective Affiliates;
(g)
make or authorize capital expenditures other than capital expenditures in
an amount not to exceed $250,000 individually and $5,000,000 in the aggregate; provided,
however, that with respect to any capital expenditures for replacement of essential equipment or
for compliance with material life-safety requirements or any capital expenditures that are made
- 37 -

to comply with donor restrictions of gifts, notification to but not approval of Integrity shall only
be required;
(h)
make any acquisition (including by merger,
amalgamation) of the capital stock or other securities of any other Person;

consolidation

or

(i)
make any changes in financial accounting methods, principles or practices
(or change an annual accounting period), except insofar as may be required by GAAP or by
applicable Law;
(j)
waive, release, settle or compromise any pending or threatened claim,
proceeding, action or other similar matter, other than waivers, releases, settlements or
compromises of any pending or threatened claim, proceeding, action or other similar matter
(i) that does not exceed $300,000 in any single instance or in excess of $1,000,000 in the
aggregate, (ii) that does not involve any injunctive or equitable relief or impose restrictions on
the business activities of any DCHS or any DCHS Affiliate, and (iii) that does not relate to the
transactions contemplated hereby;
(k)
enter into any contract, agreement, or arrangement that, if executed prior
to the date hereof, would constitute a material Contract or terminate or materially amend or
otherwise modify any material Contract (and for the purpose of this Section 6.3(k), material
means any Contract involving aggregate consideration of $100,000.00 or more or having a term
of longer than one (1) year);
(l)
enter into, terminate or materially amend or otherwise modify any
Contract with any third party payor, except to the extent required to do so in connection with
means the Medicare Program, the Medi-Cal Program, the federal TRICARE program, and any
other, similar or successor federal, state or local health care payment programs with or sponsored
by Governmental Authorities or adjustments applicable to the Hospitals;
(m)
enter into, terminate or materially amend or otherwise modify any material
Contract by which DCHS any DCHS Affiliate contracts for physician or other clinical services;

6.4

(n)

enter into or grant any guaranties;

(o)

take, or agree or otherwise commit to take, any of the foregoing actions.

Regulatory Approvals; Consents to Assignment.

(a)
Subject to Section 6.6(b), DCHS shall (i) use diligent efforts, as
reasonably requested by Integrity, to assist Integrity in the securing of, as promptly as practicable
and before the Closing Date, all Governmental Entity approvals, and (ii) will provide such other
information and communications to Governmental Entities and accrediting and certifying bodies
as Integrity or such authorities and bodies may reasonably request. DCHS shall also reasonably
assist Integrity to complete change of control applications and notices with respect to Licenses,
billing numbers, provider applications and other permits relating to the Hospitals for each of the
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functions at Hospitals or any DCHS Affiliate which require approval of the Transaction by a
Governmental Entity or by a third party payor (each, an Application). DCHS shall provide
Integrity in a timely manner with such information about the Hospitals and DCHS Affiliates as
may be needed for the prompt and timely completion and filing of each Application.
(b)
Within fifteen (15) days after the Effective Date, DCHS shall file all
necessary regulatory filings set forth on Schedule 6.4(b), which shall include at a minimum the
following:
(i)
The required Notification and Report Form for Certain Mergers
and Acquisitions under the HSR Act with the U.S. Federal Trade Commission and the U.S.
Department of Justice Antitrust Division, and such other filings as Integrity and DCHS may
mutually determine are necessary or desirable in connection with the Transaction under
applicable Antitrust Laws (collectively, the Antitrust Filings) with the appropriate
Governmental Entity designated by Law to receive such filings. As promptly as is practicable
after receiving any request from the U.S. Department of Justice or the U.S. Federal Trade
Commission for information, documents, or other materials in connection with the review of the
Antitrust Filings, DCHS shall use reasonable efforts to comply with such request. DCHS shall
promptly inform Integrity of any material communication with, and any proposed understanding,
agreement or undertaking with, the U.S. Department of Justice or the U.S. Federal Trade
Commission relating to the Antitrust Filings. DCHS shall give Integrity reasonable advance
notice of, and the opportunity to participate in any inquiry or investigation by, or any material
meeting or conference (whether by telecommunications or in person) with, the U.S. Department
of Justice or the U.S. Federal Trade Commission or the California Attorney General relating to
the Antitrust Filings. DCHS shall deliver to Integrity within five (5) Business Days following the
filing thereof, a complete and accurate copy of any Antitrust Filing filed by DCHS. All fees
required to be paid to the U.S. Federal Trade Commission and any other Governmental Entity in
connection with the Antitrust Filings shall be paid solely by Integrity at the time of filing.
(ii)
filing required by the California Attorney General for approval of
the Transaction pursuant to California Corporations Code Section 5920, and any other such
filings as Integrity and DCHS may determine are necessary or desirable in connection with
receiving California Attorney General Approval. DCHS shall use best efforts in cooperation with
Integrity to obtain Acceptable AG Conditions. As promptly as is practicable after receiving any
request from the California Attorney General for information, documents, or other materials in
connection with the review of the request for California Attorney General Approval, DCHS shall
use reasonable efforts to comply with such request. DCHS shall promptly inform Integrity of any
material communication with, and any proposed understanding, agreement or undertaking with,
the California Attorney General relating to the California Attorney General Approval. DCHS
shall give Integrity reasonable advance notice of, and the opportunity to participate in any
inquiry or investigation by, or any material meeting or conference (whether by
telecommunications or in person) with, the California Attorney General relating to the California
Attorney General Approval. DCHS shall deliver to Integrity within five (5) Business Days
following the filing thereof, a complete and accurate copy of any materials filed with the
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California Attorney General by DCHS in connection with the California Attorney General
Approval.
(c)
On or prior to the Closing, DCHS shall use its reasonable efforts to obtain
any consents of third parties as may be required under any of the material Contracts and Real
Estate Leases, to the extent third party prior consent to the Transaction is necessary to avoid
material default under such Contract or Real Estate Lease as a result of the consummation of the
Transaction.
6.5
Tax Exempt Status. DCHS will use best efforts to confirm its continuing
exemption from California state income taxation. All of the DCHS Affiliates, excluding Marillac
Insurance Company, Ltd., De Paul Ventures, LLC and each other non-exempt Affiliate, are
exempt from federal taxation under Section 501(c)(3) of the Code and DCHS will use best
efforts to confirm the continuing exemption of such DCHS Affiliates from California state
income taxation. Notwithstanding anything in this Agreement, including the Exhibits, to the
contrary, DCHS and all of the DCHS Affiliates, excluding Marillac Insurance Company, Ltd. De
Paul Ventures, LLC, and each other non-exempt Affiliate, will continue to operate exclusively in
furtherance of charitable purposes as described in Section 501(c)(3) of the Code.
6.6

Additional Financial Information.

(a)
Within thirty (30) days following the end of each fiscal month prior to the
Closing, or forty-five (45) days in the case of the end of the fiscal year, DCHS will deliver to
Integrity and BlueMountain true and complete copies of the unaudited balance sheets and the
related unaudited statements of revenues and expenses of the System that have been prepared by
DCHS for each month then ended subsequent to the date of the Financial Statements, which will
be prepared in accordance with GAAP, subject to the GAAP Exceptions.
(b)
Within one hundred fifty (150) days following the end of DCHS fiscal
year and in no event less than forty-five (45) days prior to the Closing Date, DCHS will deliver
to Integrity and BlueMountain true and complete copies of the audited Financial Statements for
fiscal year ending June 30, 2014 that have been prepared on behalf of DCHS, which will have
been prepared in accordance with GAAP.
(c)
Within thirty (30) days following the end of each fiscal month prior to the
Closing, DCHS will deliver to Integrity and BlueMountain a preliminary updated estimated
closing statement which will include DCHS good faith assessment of the sources of funds that
will be available at Closing, and the disbursements of funds that will need to be made at Closing.
For illustrative purposes only, examples of disbursements include legal, M&A advisory and
consulting fees, severance obligations, bond and other indebtedness pay off requirements and the
like to be paid at Closing, and examples of sources include cash from Integrity, cash on hand,
investments, restricted investments, and the like that are anticipated to be available and useable
at Closing.
6.7
Exclusivity. DCHS will not, nor will it permit its Affiliates or DOCMSC to,
authorize or permit any of its or their respective officers, directors, partners or employees or any
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investment banker, financial advisor, attorney, accountant or other representative retained by it


or them to, initiate, solicit, encourage (by way of furnishing access, non-public information or
otherwise), negotiate or take any other action intended to facilitate any inquiries or the making of
any proposal which constitutes, or may reasonably be expected to lead to, any Alternative
Proposal, nor entertain, agree to, endorse, vote for, participate in any discussions or negotiations
or recommend any Alternative Proposal. In the event that DOCMSC, DCHS, any of its Affiliates
or any of their respective officers, directors or partners receives any bona fide proposals or offers
for an Alternative Proposal, DCHS will promptly inform Integrity of that fact and furnish to
Integrity the material specifics thereof. The restriction set forth in this Section 6.7 shall expire
upon the termination of this Agreement. Notwithstanding any provision to the contrary in this
Agreement, in the event of the termination of this Agreement or failure to Close resulting from
or related to a breach or violation of this Section 6.7, BlueMountain shall be entitled to payment
from DCHS in an amount equal to $20,000,000 plus the amount of all costs and expenses
(including, without limitation, attorneys fees and court costs) incurred after the Effective Date
by BlueMountain and Integrity in connection with the negotiation, preparation, execution,
performance, and enforcement of this Agreement, the Transitional Consulting Services
Agreement and the Transaction Documents but not to exceed $5,000,000 in the aggregate (the
Break-Up Fee). The Break-Up Fee shall be in addition to the distribution and payment of the
Deposit to Integrity pursuant to Section 2.4, if applicable, and any other rights or remedies which
BlueMountain or Integrity may have in connection with a breach or violation of this Section 6.7,
provided, however, that the distribution and payment of the Deposit in connection with a breach
or violation of this Section 6.7 is not subject to the proviso in the second sentence of Section
2.4(b) and any payment due under the terms and conditions of this Section 6.7 shall be in
addition to any amount due if there is a requirement to return all or a portion of the Deposit.
6.8
Supplement to Disclosure Schedules. From time to time prior to the Closing,
DCHS shall have the right (but not the obligation) to supplement or amend the Disclosure
Schedules hereto with respect to any matter hereafter arising or of which it becomes aware after
the date hereof (each a Schedule Supplement), and each such Schedule Supplement shall be
deemed to be incorporated into and to supplement and amend the Disclosure Schedules as of the
Closing Date; provided, however, that in the event such event, development or occurrence which
is the subject of the Schedule Supplement constitutes or relates to something that has had a
Material Adverse Effect, then Integrity shall have the right to terminate this Agreement for
failure to satisfy the closing condition set forth in Section 9.1; provided, further, that if
BlueMountain or Integrity has the right to, but does not elect to terminate this Agreement within
fifteen (15) Business Days of its receipt of such Schedule Supplement, then each BlueMountain
Fund and Integrity shall be deemed to have irrevocably waived any right to terminate this
Agreement with respect to such matter under Section 9.1.
6.9
D&O Insurance. Prior to the Closing, DCHS shall obtain a prepaid six (6) year
extended reporting endorsement tail insurance policy (the D&O Insurance), the details of
which, including cost, are set forth on Schedule 6.9, for claims made after the Effective Time
with respect to matters existing or occurring prior to the Effective Time from DCHS current
D&O Insurance carrier and broker (provided that the rates and scope of coverage offered by such
carrier are consistent with the agreement of the Parties, and if not, the carrier used shall be
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mutually acceptable to DCHS and Integrity and have the same or better credit rating as DCHS
current D&O Insurance carrier), for the persons who, as of the Effective Date, are covered by
DCHS or DCHS Affiliates existing D&O Insurance with terms the same as or similar to
DCHS existing D&O Insurance with respect to matters existing or occurring prior to the
Effective Time.
6.10 Fiduciary Liability Insurance. Prior to the Closing, DCHS shall obtain a prepaid
six (6) year extended reporting endorsement tail insurance policy (the Fiduciary Liability
Insurance), the details of which, including cost, are set forth on Schedule 6.10, for claims made
after the Effective Time with respect to matters existing or occurring prior to the Effective Time
from DCHS current Fiduciary Liability Insurance carrier and broker (provided that the rates and
scope of coverage offered by such carrier are consistent with the agreement of the Parties, and if
not, the carrier used shall be mutually acceptable to DCHS and Integrity and have the same or
better credit rating as DCHS current Fiduciary Liability Insurance carrier), for the persons who,
as of the Effective Date, are covered by DCHS or DCHS Affiliates existing Fiduciary Liability
Insurance with terms the same as or similar to DCHS existing Fiduciary Liability Insurance with
respect to matters existing or occurring prior to the Effective Time.
6.11 Retained Assets. DCHS shall use reasonable efforts to cause the transfer of the
Retained Assets to DOCMSC at or prior to the Closing.
6.12

Transitional Consulting Services Agreement.

The Parties acknowledge and agree that the purpose of the Transitional Consulting
Services Agreement is to, among other things, effectuate a smooth transition between DCHS and
Integrity with respect to the management of the System after the Closing, and to allow and aid in
implementation of the Mitigation Plans and Performance Improvement Plan. DCHS will use
diligent efforts to cooperate with Integrity, and DCHS will consider in good faith Integritys
recommendations in performing its consulting services under the Transitional Consulting
Services Agreement, so long as they are consistent with the rules and regulations of DCHS,
subject at all times to DCHS ultimate authority and control over the System and the Hospitals.
6.13

Corporate Name; Grant of Limited License to Use Retained Marks.

As of the Effective Date, the corporate name of DCHS shall be changed to Integrity
Health System, Inc. by the filing of the DCHS Amended Articles with the California Secretary of
State, and all references to DCHS in this Agreement with respect to periods, matters, covenants,
and obligations arising on or after the Effective Time shall be deemed to refer to Integrity Health
System, Inc. Notwithstanding any provision of this Agreement to the contrary, as of the
Effective Time and subject to the Closing, DOCMSC, on behalf of itself and its Affiliates,
hereby grants Integrity, BlueMountain, and DCHS a non-exclusive, worldwide, royalty-free,
limited license to use the Retained Marks for a period of one hundred eighty days (180)
immediately following the Closing Date (the License Period), consistent with the practice and
manner of the use of the Retained Marks prior to the Closing, exclusively for the purpose of
operating the System in the ordinary course. During the License Period, the signage, websites,
and other materials available to the public generally of DCHS and the DCHS Affiliates may
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continue to reflect the DCHS Names and other Retained Marks, but in no event will the license
granted hereunder permit Integrity or BlueMountain to use the letterhead of DCHS. Integrity and
BlueMountain shall make, or cause DCHS to make, diligent efforts to change the names, marks,
symbols, logos, domain names, exterior and interior signage, etc. associated with or representing
the System to remove any reference or likeness to the Retained Marks as soon as is reasonably
practicable following the Closing Date and, in no event shall the Retained Marks be used by
DCHS, Integrity, or BlueMountain after the expiration of the License Period, except as permitted
with respect to those signs and other items set forth on Schedule 6.13.
6.14

Closing Conditions.

Prior to the Closing, DCHS shall use commercially reasonable efforts to cause the
conditions specified in Article 6 and Article 8 over which DCHS have reasonable control to be
satisfied as soon as reasonably practicable, but in any event prior to the Closing.
6.15

Financial Cooperation.

a. From and after the Effective Date until the earlier of the Closing Date and the
termination of this Agreement, DCHS shall reasonably cooperate with and reasonably
assist Integrity, Lender, and BlueMountain in connection with the arrangement of (i)
the Debt Facility, and (ii) any other financing in the form of indebtedness of, or
equity in, Integrity or BlueMountain to be used after the Closing Date for working
capital or other financing needs of the System that Integrity or BlueMountain may
choose to arrange prior to the Closing Date (collectively, the Financing). Such
cooperation shall include, to the extent reasonable: (a) arranging for senior officers of
DCHS and the DCHS Affiliates to attend reasonable, scheduled meetings with
prospective lenders and investors in presentations, other meetings, due diligence
sessions and road shows, (b) arranging for employees and advisors of DCHS and the
DCHS Affiliates to provide reasonable assistance with Integritys or Lenders
preparation of business projections and financing documents and any presentation
materials, including any bank book, offering memorandum, rating agency
presentations and other similar presentation materials, (c) furnishing Integrity or
Lender and their financing sources with financial and other pertinent information and
materials regarding the System; (d) cooperating with the marketing efforts of
Integrity and BlueMountain and its financing sources for any such debt or equity
raised by Integrity or BlueMountain; (e) the execution and delivery of any customary
pledge and security documents, other definitive summary documents and other
documents as may be reasonably requested by Integrity and that will be effective as
of the Closing; and (f) facilitating the pledging of collateral securing the Financing
and the removal of existing Encumbrances on such collateral to the extent required by
Integrity or Lender, subject to the terms of this Agreement.
b. DCHS and BlueMountain each agrees to accommodate and agree to changes to the
Transaction Documents as reasonably requested by the other Party to address legal,
accounting and tax considerations in relation to the Transaction, provided that, based
upon the results of independent appraisals and corresponding tax analysis, there is no
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material adverse effect for any Party. Notwithstanding the foregoing, this will
include cooperating with respect to the final allocation and structure of the Purchase
Option Agreements and the IT Agreement, or any other mechanism related to
providing the Contribution Funding.
6.16

Notification of Actions and Proceedings.

From and after the Effective Date until the earlier of the Closing Date and the termination
of this Agreement, DCHS shall promptly notify Integrity and BlueMountain in writing after
becoming aware of any material fact, change in condition, circumstance, claims, actions,
proceedings, investigations or inquiries commenced or, to the Knowledge of DCHS, threatened,
involving or affecting the System and/or the DCHS Affiliates. From the Effective Date through
the Closing Date, DCHS shall use reasonable efforts to notify Integrity and BlueMountain in
writing within three (3) Business Days (or if less than twenty (20) days prior to Closing, as
promptly as practicable) of becoming aware of any material fact, change in condition,
circumstance, claims, actions, proceedings, investigations or inquiries commenced or, to the
Knowledge of DCHS, threatened, involving or affecting the System and/or any DCHS Affiliate
which, in each case, to the Knowledge of DCHS, could be reasonably expected to cause a breach
of any representation or warranty of DCHS contained herein or any covenant of DCHS or
DOCMSC contained herein. In addition, from and after the Effective Date until the earlier of the
Closing Date and the termination of this Agreement, DCHS shall give prompt notice in writing
to Integrity and BlueMountain of any inquiry, material notice, or other material communication
received by DCHS or any DCHS Affiliate from any Governmental Entity or any other third party
in connection with the transactions contemplated hereby. Prior to the Closing Date, DCHS shall
use reasonable efforts to provide to Integrity and BlueMountain a copy of any material notice
received by any DCHS with respect to any Contract promptly upon receipt thereof or of any
execution of a Contract promptly after execution thereof.
6.17

Management Agreement.

Without limiting any other provision of this Agreement, from and after the Effective Date
until the earlier of the Closing Date and the termination of this Agreement, DCHS recognizes the
importance of Integrity and BlueMountain being able to meet and communicate with personnel
all across the System and Hospitals, including to prepare and plan for, and ensure the smooth
transition of, new policies, procedures, strategies, contracts and arrangements that Integrity
anticipates will be relevant to the operation of the System pursuant to the Management
Agreement, and during such period DCHS shall, and shall cause each other DCHS Affiliate to,
use all commercially reasonable efforts to facilitate and accommodate all aspects of the transition
to and the implementation of the Management Agreement after Closing, including by providing
assistance to Integrity, including its employees, accountants, counsel, advisors and other
representatives, as they may request, and at the request of Integrity, arranging, attending, and
participating in meetings, negotiations and planning discussions with, and otherwise ensuring
Integrity reasonable accessibility to and ability to communicate and interact with, the senior
executive officers, medical staff, other employees of any of the DCHS or the DCHS Affiliates,
applicable Governmental Entities and any other Persons providing goods or services or otherwise
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involved in providing services by or to the System or any Hospital (including any third party
vendors or independent contractors thereof).
6.18 Access. DCHS will permit the officers and authorized representatives and agents
of Integrity and BlueMountain reasonable access to the medical staff, employees and other
personnel of the System (including the Hospitals and other DCHS Affiliates), and to the assets
and the books and records of DCHS related thereto and the DCHS Affiliates relating to the
System, including the right to inspect the same and conduct audits and verifications thereof;
provided, however, that (a) none of the foregoing violates patient or other confidentiality
requirements or impairs any other privilege or requirement of confidentiality under Law or
contract, and (b) BlueMountain and Integrity first provides notice of its expected access and
inspection and conducts the same in such a manner as not to interfere unreasonably with the
operation of the System or the conduct of DCHS business.
6.19 Charitable Purpose. DCHS (i) understands and agrees that DCHS and all of the
DCHS Affiliates, excluding Marillac Insurance Company, Ltd. and De Paul Ventures, LLC and
each other non-exempt Affiliate, are required to be operated at all times exclusively for
charitable purposes and for the benefit of the community, in each case in accordance with the
requirements established under Section 501(c)(3) of the Code and applicable California law, and
that any private benefit conferred by the System, DCHS, and such Affiliates must be incidental
and necessary to achieving that broader charitable purpose of the System, (ii) covenants that the
System, DCHS and such Affiliates will at all times be operated in such manner notwithstanding
anything else in this Agreement or the Exhibits to this Agreement to the contrary, and (iii) agrees
that in the event of a conflict between business considerations and this charitable purpose that the
charitable purpose will control.
ARTICLE 7
COVENANTS OF INTEGRITY
7.1

Regulatory Approvals.

(a)
Subject to any specific terms or conditions contained in this Agreement,
from the Effective Date until the Closing Date or the earlier termination of this Agreement
pursuant to 9.12, Integrity shall use reasonable efforts to assist DCHS in obtaining all
Governmental Entity approvals, including, without limitation, the following:
(i)
Integrity shall provide such other information and communications
to Governmental Entities and accrediting and certifying bodies as DCHS or such Governmental
Entities may reasonably request.
(ii)
Subject to Section 7.1(a)(iii), Integrity will reasonably cooperate
with DCHS in DCHS efforts to obtain, as promptly as practicable, approvals, authorizations and
clearances from all Governmental Entities required for the Transaction as set forth on
Schedule 7.1(a)(ii). Integrity shall use reasonable efforts to obtain as soon as practicable all
Licenses and Permits required to operate the System (including the Hospitals) as currently
operated and shall use reasonable efforts to obtain, as promptly as practicable, all approvals,
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authorizations and clearances from all Governmental Entities required by Law for Integrity to
consummate the Transaction contemplated hereby, including, but not limited to, the California
Attorney General Approval. Integrity shall be apprised of DCHS efforts in obtaining such
approvals, authorizations and clearances, and Integrity shall be provided with copies of
correspondence pertaining to requests and applications submitted by DCHS. Except as otherwise
provided by this Agreement, Integrity will bear all costs and expenses associated with obtaining
all approvals, authorizations and clearances from all Governmental Entities required by Law to
consummate the Transaction.
(iii) Integrity shall act diligently and reasonably to complete change of
control applications and notices with respect to all Applications, to the extent required by Law in
connection with the Transaction, as set forth on Schedule 7.1(a)(iii). Integrity shall complete and
file all Applications that are required by a Governmental Entity or by a third party payor to be
filed by the transferee. Promptly after the filing of each Application, Integrity shall provide one
full copy of such Application to DCHS. Integrity shall pay the entirety of any fees charged by a
Governmental Entity in connection with the filing of any Application including, without
limitation, fees charged in connection with Applications that must be filed by the transferor.
(iv)
Within fifteen (15) days after the Effective Date, Integrity shall file
all necessary regulatory filings set forth on Schedule 7.1(a)(ii), with the exception of the
necessary filings with the California Department of Public Health as set forth on
Schedule7.1(a)(ii), which shall be filed no later than ten (10) Business Days after the California
Attorney General Approval. Schedule 7.1(a)(ii) shall include at a minimum, if required by Law,
the Antitrust Filings with the appropriate Governmental Entity designated by Law to receive
such filings, and Schedule 7.1(a)(iii) shall include at a minimum all material Licenses and
Permits needed to operate the Hospitals. As promptly as is practicable after receiving any request
from the U.S. Department of Justice or the U.S. Federal Trade Commission for information,
documents, or other materials in connection with the review of the Antitrust Filings, Integrity
shall use reasonable efforts to comply with such request. Integrity shall cooperate with DCHS in
connection with resolving any inquiry or investigation by the U.S. Department of Justice or the
U.S. Federal Trade Commission relating to the Antitrust Filings. Integrity shall promptly inform
DCHS of any communication with, and any proposed understanding, agreement or undertaking
with, the U.S. Department of Justice or the U.S. Federal Trade Commission relating to the
Antitrust Filings. Integrity shall give DCHS reasonable advance notice of, and the opportunity to
participate in any inquiry or investigation by, or any meeting or conference (whether by
telecommunications or in person) with, the U.S. Department of Justice or the U.S. Federal Trade
Commission relating to the Antitrust Filings. Integrity shall deliver to DCHS within five (5)
Business Days following the filing thereof, a complete and accurate copy of any Antitrust Filing
filed by Integrity. All fees required to be paid to the U.S. Federal Trade Commission and any
other Governmental Entity in connection with the Antitrust Filings shall be paid solely by
Integrity at the time of filing.
7.2

Employees.

(a)
Subject to Section 7.2(b), following the Closing Date, Integrity
acknowledges and agrees that the System shall continue the employment of substantially all of
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the (i) unrepresented employees of DCHS and the DCHS Affiliates, and (ii) employees working
under a Collective Bargaining Agreement, or otherwise represented by a union and a continuing
obligation imposed by Law to bargain with such union exists, each of whom are employed by
DCHS or a DCHS Affiliate immediately prior to Closing, and who are in good standing and pass
standard employee background checks, including any such employees who are on short-term or
long-term disability or on leave of absence pursuant to the Family and Medical Leave Act of
1993 (each, a Continuing Employee). The Continuing Employees will receive substantially the
same salaries or wages, and be given similar job titles and duties, as were provide by DCHS
prior to the Closing Date and for a period of at least twelve (12) months from the Closing Date,
subject to any applicable employment contract, personnel policies, and employment policies or
handbooks of DCHS or any DCHS Affiliate, there will be no adverse changes to the levels of
salaries, wages, or benefits (including rights to severance) to employees of DCHS and the DCHS
Affiliates.
(b)
Integrity agrees and acknowledges that it shall adhere to and abide by the
severance obligations set forth in the written employment agreements of the system office
employees of DCHS, DCHS Executives, the Hospital CEOs, the DCHS Medical Foundation
Chief Financial Officer, Chief Information Officer and Chief Medical Officer, and the CBS
Senior Directors all of which are listed on Schedule 1.1(b) (collectively, the System Office
Employees) and the Continuing Employees and, where no such written employment agreement
exists, abide by DCHS severance pay obligations as set forth on the policies attached to
Schedule 7.2(b) for a period of twelve (12) months following the Effective Time, provided that
any System Office Employee or Continuing Employee who executes a new written employment
agreement with DCHS or a DCHS Affiliate will be entitled only to the severance pay benefits set
forth in such new employment agreements, and consequently such System Office Employee or
Continuing Employee will no longer be entitled to the severance pay benefits set forth in their
DCHS employment agreement or DCHS severance pay policies, as the case may be.
(c)
Integrity shall use commercially reasonable efforts to cause each
Continuing Employee to receive service credit for all of his or her years of service with DCHS
and DCHS predecessors in interest for purposes of determining eligibility, vesting and the
amount of holiday, vacation or sick pay to which each such Continuing Employee is entitled
under the applicable benefit plans, programs and arrangements of DCHS and the DCHS
Affiliates after the Closing.
(d)
Integrity shall cause all pre-existing conditions that any Continuing
Employee or his or her covered dependents has as of the Closing Date, and all proof of
insurability provisions to which such employee or dependent would be otherwise subject, to be
waived or satisfied for all conditions covered by any plan maintained by DCHS or the DCHS
Affiliates after the Closing in which any such employee participates, in each case to the same
extent waived or satisfied under the corresponding DCHS Plan immediately prior to Closing.
Integrity shall use commercially reasonable efforts to cause all waiting periods applicable to
Continuing Employees under each plan maintained by DCHS or the DCHS Affiliates after the
Closing to be waived with respect to the Continuing Employees and their covered dependents to
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the extent that any such waiting periods were waived or satisfied under the corresponding DCHS
Plan immediately prior to Closing.
(e)
Subject to DCHS providing through usual and ordinary means at or
shortly prior to the Closing Date the necessary information to reasonably allow Integrity to
satisfy this Section (e)7.2(e), Integrity agrees to cause any eligible expenses incurred by a
Continuing Employee and his or her covered dependents during the portion of the plan year prior
to the Closing Date to be accounted for in the corresponding new or existing employee benefit
plan of DCHS or the DCHS Affiliates after the Closing for purposes of satisfying all deductibles,
coinsurance and maximum out-of-pocket requirements applicable to such employee and/or his or
her covered dependents for the plan year in which the Closing Date occurs if such amounts had
been paid for the corresponding benefit in accordance with such new or existing employee
benefit plan.
(f)
Nothing contained in this Section 7.2 is intended to be or shall be
considered to be an amendment or adoption of any plan, program, agreement, arrangement or
policy of DCHS, Integrity or any of their respective Affiliates, nor shall anything in this
Section 7.2 interfere with or limit DCHSs right to amend, modify or terminate any DCHS Plan
or any other benefit or compensation plan, program, agreement, policy, contract or arrangement,
or to terminate the employment of any employee of DCHS for any reason, subject to the
provisions contained in this Section 7.2.
7.3

Pension Liabilities.

(a)
As of the Effective Time, subject to necessary DCHS board direction and
approval, Integrity shall cause DCHS to (i) amend the Defined Benefit Church Plan and the
Defined Contribution Church Plans as necessary to convert them each from a non-electing
church plan defined in Section 3(33) of ERISA and Section 414(e) of the Code, to an employee
pension benefit plan defined in Section 3(2) of ERISA that is not a church plan defined in
Section 3(33) of ERISA and Section 414(e) of the Code, such that the Defined Benefit Church
Plan and Defined Contribution Church Plans will accordingly be subject to and governed by
Title I of ERISA; (ii) amend all other employee benefit plans maintained by DCHS as necessary
to satisfy the requirements of ERISA and the Code; (iii) make application to the Pension Benefit
Guaranty Corporation (the PBGC) for coverage of the Defined Benefit Church Plan under the
PBGC insurance program as soon as possible under applicable PBGC rules; (iv) administer and
fund all such plans described in (i), (ii) and (iii) above in accordance with the terms of the
applicable plan documents, and requirements of ERISA and the Code; and (iv) make all
contributions necessary to satisfy the funding and PBGC premium requirements of ERISA and
the Code with respect to benefits accrued under the Defined Benefit Church Plan, whether the
obligation to make such contributions results from the conversion of the Defined Benefit Church
Plan to a plan that is not a church plan or a determination that the Defined Benefit Church Plan
did not qualify as a church plan prior to the Closing Date.
(b)
Effective as of the Effective Time, DCHS shall cause the Defined Benefit
Church Plan and the Defined Contribution Church Plans to be amended as necessary to (i) ensure
that such plans expressly state that they are subject to Title I of ERISA, (ii) satisfy the
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requirements of ERISA and the Code, and (iii) ensure coverage of the Defined Benefit Church
Plan by the PBGC; and, thereafter, shall administer and fund the plans and any successor plans in
accordance with the requirements of ERISA and the Code. Following the Effective Time, DCHS
shall continue to be bound by all of its liabilities and obligations, be they contingent, interim or
otherwise, under the Defined Benefit Church Plan and the Defined Contribution Church Plans.
The funding target of the Defined Benefit Church Plan as of the Effective Time shall be the
present value of all benefits accrued or earned under the Defined Benefit Church Plan as of the
Effective Time, without regard to any purported limitation based on the plan's assets, as
computed in accordance with ERISA. For the avoidance of doubt, Integrity shall cause DCHS to
make all contributions necessary to satisfy the funding requirements of ERISA and the Code
with respect to benefits accrued under the Defined Benefit Church Plan, whether the Defined
Benefit Church Plan is subject to Title I of ERISA by conversion or pursuant to a determination
that the Defined Benefit Church Plan did not qualify as a church plan prior to the Effective
Time. Integrity shall cause DCHS to maintain the Defined Benefit Church Plan as a separate,
single-employer plan in accordance with the requirements of ERISA and the Code.
(c)
Integrity, subject to necessary DCHS Board direction and approval, shall
facilitate DCHS taking the following actions with respect to the Multiemployer Plans to which
DCHS has made contributions prior to the Closing Date pursuant to the Collective Bargaining
Agreements:
(i)
Take any actions necessary with respect to the uninterrupted
continuation of the DCHS obligations to the Multiemployer Plans as required by Collective
Bargaining Agreements and continue to contribute to such Multiemployer Plans, as required by
Collective Bargaining Agreements, for substantially the same number of contribution base units
for which DCHS had an obligation to contribute to the Multiemployer Plans immediately prior to
the Effective Time, as the base units may be modified by such Multiemployer Plans from time to
time.
(ii)
Provide funding for the Multiemployer Plans in accordance with
the requirements of ERISA and the Code. DCHS shall continue to have responsibility for DCHS
portion of the liabilities, be they contingent, interim or otherwise, under the Multiemployer Plans
as of the Effective Time.
(d)
DCHS shall remain the sole and exclusive obligor for funding liabilities to
the Defined Benefit Church Plan, the Multiemployer Plans, and all other DCHS Employee
Pension Benefit Plans and Employee Welfare Benefit Plans. Neither BlueMountain nor Integrity
nor any of their Affiliates shall have any liability or responsibility for funding or other DCHS
liabilities to the Defined Benefit Church Plan, the Multiemployer Plans, or the other DCHS
Employee Pension Benefit Plans and Employee Welfare Benefit Plans.
(e)
DCHS shall indemnify, defend and hold harmless DOCMSC and its
Affiliates from any liability, be it contingent, interim or otherwise, resulting from any failure or
alleged failure by DCHS to satisfy any reporting or funding obligations with respect to the
Defined Benefit Church Plan or to contribute to any of the Multiemployer Plans. Solely for
purposes of this subdivision, the term Affiliate shall include any person who may be held
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jointly and severally liable for the funding of the Defined Benefit Church Plan or any of the
Multiemployer Plans under any provision of ERISA.
7.4
Consents to Assignment. Integrity shall cooperate with DCHS as reasonably
requested to obtain any consent to assign the Contracts and Real Estate Leases. Without DCHS
prior written consent, which consent will not be unreasonably withheld or delayed, Integrity shall
not seek to obtain a consent from any party to any specific Contract.
7.5
Contact with Unions. Representatives of both DCHS and Integrity shall meet and
confer from time to time as reasonably requested by either party to discuss strategic business
options and alternative approaches in negotiating each such Collective Bargaining Agreement.
Both DCHS and Integrity shall each participate in all union negotiations related to any specific
Collective Bargaining Agreement. Promptly following the Effective Date, DCHS shall use
commercially reasonable efforts to initiate discussions to renegotiate each Collective Bargaining
Agreement currently in effect with each applicable union. Without the prior written consent of
Integrity, DCHS will not enter into any Collective Bargaining Agreement with a duration in
excess of 6 months or having economic terms and conditions that are not substantially similar to
those in the Collective Bargaining Agreements in effect immediately prior to Closing. DCHS
will not unreasonably withhold, condition or delay approval or implementation of any
successfully renegotiated Collective Bargaining Agreement, subject at all times to DCHS
ultimate authority and control over the System.
7.6
Charity Care; Other Related Matters. (a) Integrity acknowledges that, following
the Effective Time, DCHS will treat indigent patients and to provide charity care in the service
area of the Hospitals to the extent required by Law and any Acceptable AG Condition with
respect to the Transaction and will comply with all applicable Laws governing such matters. For
a period of not less than five (5) years following the Effective Time, DCHS shall maintain
policies for the treatment of indigent patients at the Hospitals similar to those currently in effect
at such Hospitals (or replacement policies that are intended to provide a similar or greater benefit
to the community), provided that for purposes of determining the amount of charity and indigent
care provided at the Hospitals, DCHS must adhere to the definitions and methodology for
calculating charity care costs established by the California Office of Statewide Health Planning
and Development as set forth in the Accounting and Reporting Manual for California Hospitals
and applicable Hospital Technical Letters issued in connection therewith.
(b)
To ensure adequate access to Medicare and Medi-Cal patients, for a period
of not less than five (5) years following the Effective Time, DCHS will continue to operate the
Hospitals as general acute care hospitals under California Health and Safety Code Section 1250
and shall continue to offer an open emergency room, subject to the availability of physicians on
the respective Hospitals medical staff qualified to support such services and subject further to
such changes as may be necessary or appropriate based on community needs, market demand
and the financial viability of such services, and as required under the Acceptable AG Conditions
with respect to the Transaction. Integrity acknowledges that DCHS shall operate the Hospitals in
accordance with all Laws, including adopting a policy to provide for an appropriate medical
screening examination to any patient presented to the emergency room who has a medical
emergency, or who, in the judgment of the staff physician, has an immediate emergency need.
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No such patient shall be turned away because of age, race, religion, gender, sexual orientation,
payment source or inability to pay.
(c)
For a period of not less than five (5) years following the Effective Time,
Integrity acknowledges that DCHS will maintain the existing chapels at the Hospitals to be used
for the celebration of Catholic mass and other religious services, and provide an appropriately
staffed and funded pastoral care service at the Hospitals.
7.7
Capital Commitment. After the Closing, DCHS shall reserve or expend the
following amounts for capital expenditures in each of the successive five (5) years immediately
following the Closing Date: $40,000,000.00 in each of the first three (3) years immediately
following the Closing Date, and $30,000,000.00 in each of years 4 and 5 immediately following
the Closing Date. Notwithstanding the preceding sentence, in the event that within the first five
years post-Closing, one or more of the Hospitals is sold or otherwise disassociated from DCHS,
any remaining annual Capital Commitments of the remaining DCHS thereafter as set forth
above, shall be reduced pro-rata based on the net revenue for such sold or disassociated
Hospital(s) as included in the most recently completed audited income statement.
7.8

Intellectual Property.

(a)
Except as permitted under Section 6.13 of this Agreement, Integrity
hereby covenants and agrees not to use the Hospital Trademarks in any manner or in any
medium or form that includes or incorporates any Retained Marks (including, without limitation,
the DCHS Names). Integrity further hereby covenants and agrees that all marketing and
advertising using the Hospital Trademarks after the Effective Time will be in a form that
integrates the use of the name Integrity Health System, Inc. or similar branding in connection
with the use of such Hospital Trademarks in such marketing or advertising materials.
(b)
Except as permitted under Section 6.13, Integrity covenants not to use the
Retained Marks or any marks or domain names that are confusingly similar to the Retained
Marks, or any other Retained IP, in any manner and in any medium.
(c)
Except as permitted under Section 6.13, Integrity shall, as of the Effective
Time, (i) discontinue the use of all corporate and trade names, letterhead and business cards that
contain any Retained Marks (including, without limitation, the DCHS Names), (ii) use
commercially reasonable efforts to file appropriate name change amendments with the California
Secretary of State, (iii) use commercially reasonable efforts to promptly replace or modify all
exterior and interior fixtures that contain or comprise building signs to remove completely any
Retained Marks (including, without limitation, the DCHS Names), and (iv) shall not
subsequently change such names to (or otherwise use or employ) any names which contain any
Retained Marks (including, without limitation, the DCHS Names).
7.9
Actions Related to Legal Opinion from Bond Counsel. BlueMountain agrees to
cooperate with and provide Orrick, Herrington & Sutcliffe LLP (Orrick) with all requested
documentation in order to complete the opinion described in Section 8.9, including a 501(c)(3)
opinion from a firm acceptable to Orrick, and BlueMountain shall obtain any valuations
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necessary to support the fair market value of the System, the consideration to be paid upon
acquisition of the purchase right and exercise of the Purchase Option pursuant to the Purchase
Option Agreements, and the consideration to be paid to Integrity under the Management
Agreement.
7.10 D&O Coverage. As of and after the Closing Date, DCHS and each of the DCHS
Affiliates shall obtain and maintain commercially reasonable directors and officers liability
coverage for each of the directors and officers of DCHS and the DCHS Affiliates.
7.11 Closing Conditions. Prior to Closing, Integrity will use commercially reasonable
efforts to cause the conditions specified in Article 7 and Article 9 over which Integrity has
reasonable control to be satisfied as soon as reasonably practicable, but in any event prior to
Closing.
7.12 Right of First Offer. If, on or after the Effective Time, DCHS desires to sell any
of the religious assets or religious objects of the System set forth on Schedule 7.12, it shall
notify DOCMSC in writing of such religious assets or religious objects it intends to sell
(collectively, the Offered Assets). For a period of thirty (30) days after receipt of this written
notice from DCHS, DOCMSC shall have the first right and option, but not the obligation, to
make an offer to purchase and acquire the Offered Assets (such option and right, the Right of
First Offer). DOCMSC shall exercise the Right of First Offer by providing written notice to
DCHS (the Offer Notice) no later than thirty (30) days after receipt of notice from DCHS of its
intent to sell the Offered Assets. The Offer Notice shall include the price, payment, and other
material terms on which DOCMSC is willing to purchase and acquire the Offered Assets from
DCHS. For a period of thirty (30) days after receipt of the Offer Notice, DCHS shall have the
right and option, but not the obligation, to sell, transfer, and convey the Offered Assets on the
price and other terms set forth in the Offer Notice. In the event that DCHS does not respond to
the Offer Notice within thirty (30) days after receipt of the Offer Notice, DCHS shall be deemed
to have rejected the offer made by DOCMSC pursuant to the Right of First Offer and shall have
the right to sell the Offered Assets to any Person and on any terms and conditions as it may
determine.
7.13 Seton Medical Center. As of and after the Closing Date, DCHS shall ensure that
the inpatient beds of Seton Medical Center will be seismically compliant as of January 1, 2020.
In addition, DCHS will use commercially reasonable efforts to include Seton Medical Center in
the Voluntary Seismic Incentive program administered by the Office of Statewide Health
Planning and Development.
7.14 DOCMSC Lease. Concurrently with the Closing, DOCMSC or its designee shall
be entitled to enter into a lease (the form of which shall be mutually acceptable to DOCMSC and
Integrity) of the Seton Hall residences located at 262 S. Lake Street, Los Angeles, CA 90057 for
five (5) years from the Closing at a rate of $1.00 per year, and DOCMSC or such designee shall
have a right to terminate such lease with six (6) months notice to the lessor, provided, however,
that such lease in, and only in, the fourth and fifth year of its term shall be on a triple Net basis.

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7.15 Charitable Purpose. Integrity (i) understands and acknowledges that DCHS and
all of the DCHS Affiliates, excluding Marillac Insurance Company, Ltd. and De Paul Ventures,
LLC and each other non-exempt Affiliate, are required to be operated at all times exclusively for
charitable purposes and for the benefit of the community, in each case in accordance with the
requirements established under Section 501(c)(3) of the Code and applicable California law, and
that any private benefit conferred by the System, DCHS, and such Affiliates must be incidental
and necessary to achieving that broader charitable purpose of the System, (ii) acknowledges that
the System, DCHS and such Affiliates will at all times be operated in such manner
notwithstanding anything else in this Agreement or the Exhibits to this Agreement to the
contrary, and (iii) agrees that in the event of a conflict between business considerations and this
charitable purpose that the charitable purpose as articulated and determined by the Board of
Directors of DCHS will control.
ARTICLE 8
CONDITIONS PRECEDENT TO DCHS OBLIGATIONS
The obligations of DCHS hereunder are subject to satisfaction on or before the Closing
Date, of all of the conditions precedent set forth in this Article 8, any of which may be waived in
writing by the DCHS.
8.1
Representations and Warranties. The representations and warranties of Integrity
and the BlueMountain Funds contained in this Agreement will be true and correct in all material
respects on and as of the date hereof and as of the Closing Date, except where the failure of such
representations and warranties to be so true and correct would not, individually or in the
aggregate, have a Material Adverse Effect. In the event there are breaches of representations and
warranties made by Integrity and the BlueMountain Funds hereunder that have not had or are not
reasonably likely to have a Material Adverse Effect, DCHS shall not be excused from
performance hereunder as a result of such breaches, and DCHS shall not assert the breach of
such representations and warranties as a basis for not consummating the Transaction
contemplated by this Agreement.
8.2
Performance of Covenants. Each of Integrity and BlueMountain shall have in all
material respects performed all obligations and complied with all covenants and conditions
required by this Agreement to be performed or complied with by it at or prior to the Closing
Date, except where the failure to perform or comply with such covenants or conditions would
not, individually or in the aggregate, have a Material Adverse Effect. In the event there are
failures to perform or comply with covenants or conditions by either Integrity or BlueMountain
hereunder that have not had or are not reasonably likely to have a Material Adverse Effect,
DCHS shall not be excused from performance hereunder as a result of such failure, and DCHS
shall not assert the failures to perform or comply with covenants or conditions as a basis for not
consummating the Transaction contemplated by this Agreement.
8.3
Actions or Proceedings. No order, ruling, or judgment of any Governmental
Entity will remain in effect which restrains, enjoins and/or otherwise prohibits the completion of
the Transaction contemplated hereby. As of the Closing Date, no action or proceeding before any
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Governmental Entity shall have been instituted and remain in effect which seeks to restrain or
prohibit the Transaction contemplated hereby.
8.4
Approvals by Governmental Entities; Licenses and Permits; Third-Party
Consents. DCHS shall have received documentation or other evidence reasonably satisfactory to
DCHS that Integrity has received or will receive all approvals, authorizations, and consents as set
forth on Schedules 4.2(c), 6.4(b), 7.1(a)(ii) and 7.1(a)(iii), including the California Attorney
General Approval.
8.5
Hart Scott Rodino Filings. All filings required to be made and notices required to
be given pursuant to the HSR Act shall have been made, all approvals or consents required
thereby shall have been obtained and the waiting periods required thereby, if any, shall have
expired or terminated.
8.6
Other Approvals. DCHS and DOCMSC shall have obtained the necessary
approvals under applicable law of the Roman Catholic Church (Church Law) for any aspects
of the Transaction subject to Church (the Church Approval).
8.7

Retained Assets. The Retained Assets have been transferred to DOCMSC.

8.8
Other Instruments and Documents. Integrity and BlueMountain will have
delivered to DCHS each of the instruments and documents required to be delivered to it pursuant
to Section 3.2, and without limiting the foregoing, the instruments, documents, and agreements
related to or contemplated by the Transaction as set forth on Schedule 8.8 (the Transaction
Documents), shall have been executed and delivered by each of the parties thereto.
8.9
Legal Opinion from Bond Counsel. DCHS and the Master Trustee shall have
received an opinion from Orrick, Herrington & Sutcliffe LLP opining to the effect that the
Transaction (but not including exercise of the Purchase Option), in and of itself, will not have an
adverse effect on the tax-exempt status of the 2005 Bonds. BlueMountain agrees to cooperate
with and provide bond counsel with all requested documentation in order to complete this
opinion, including a 501(c)(3) opinion from an independent firm, and BlueMountain shall obtain
any valuations necessary to support the fair market value of the System, the consideration to be
paid upon exercise of the Purchase Option pursuant to the Purchase Option Agreements, and the
consideration to be paid to Integrity under the Management Agreement.
8.10 Group Ruling.
DCHS shall have received a group exemption ruling
determination letter from the Internal Revenue Service confirming (a) DCHSs status as (i) an
entity exempt from federal income tax as a charitable organization under Section 501(c)(3) of the
Code, (ii) a non-private foundation (i.e., public charity) by reason of being a supporting
organization pursuant to Section 509(a)(3) of the Code, and (iii) the central or parent
organization of the group exemption ruling, and (b) the confirmation of the tax-exempt status
under Section 501(c)(3) of the Code of each of the Hospitals and other DCHS Affiliates, by
reason of inclusion in the group exemption ruling, except for the Philanthropic Foundations
which are not included in the group exemption ruling.
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ARTICLE 9
CONDITIONS PRECEDENT TO INTEGRITYS AND BLUEMOUNTAINS
OBLIGATIONS
The obligations of Integrity and BlueMountain hereunder are subject to satisfaction, on or
before the Closing Date, of all of the conditions precedent set forth in this Article 9, any of which
may be waived in writing by Integrity. For the avoidance of doubt, in no event shall the Effect of
the Transaction on the Tax Status of the Bonds be given effect or be taken into account in
determining whether any condition under this Article 9 has not been satisfied.
9.1
Representations and Warranties. The representations and warranties of DCHS
contained in this Agreement will be true and correct in all material respects on and as of the date
hereof and as of the Closing Date, except where the failure of such representations and
warranties to be so true and correct would not, individually or in the aggregate, have a Material
Adverse Effect. In the event there are breaches of representations and warranties made by DCHS
hereunder that have not had or are not reasonably likely to have a Material Adverse Effect,
Integrity and BlueMountain shall not be excused from performance hereunder as a result of such
breaches, and Integrity and BlueMountain shall not assert the breach of such representations and
warranties as a basis for not consummating the Transaction contemplated by this Agreement.
9.2
Performance of Covenants. DCHS shall have in all material respects performed
all obligations and complied with all covenants and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing Date, except where the failure to
perform or comply with such covenants or conditions would not, individually or in the aggregate,
have a Material Adverse Effect. In the event there are failures to perform or comply with
covenants or conditions by DCHS hereunder that have not had or are not reasonably likely to
have a Material Adverse Effect, Integrity and BlueMountain shall not be excused from
performance hereunder as a result of such failure, and Integrity and BlueMountain shall not
assert the failures to perform or comply with covenants or conditions as a basis for not
consummating the Transaction contemplated by this Agreement.
9.3
Actions or Proceedings. No order, ruling or judgment of any Governmental Entity
will remain in effect which restrains, enjoins and/or otherwise prohibits the completion of the
Transaction contemplated hereby. As of the Closing Date, no action or proceeding before any
Governmental Entity shall have been instituted and remain in effect which seeks to restrain or
prohibit the Transaction contemplated hereby.
9.4
Approvals by Governmental Entities; Licenses and Permits; Third-Party
Consents. Integrity and BlueMountain shall have received documentation or other evidence
reasonably satisfactory to Integrity that Integrity has received or will receive all approvals,
authorizations, and consents set forth on Schedules 4.2(c), 6.4(b), 7.1(a)(ii) and 7.1(a)(iii),
including the California Attorney General Approval.
9.5
Hart Scott Rodino Filings. All filings required to be made and notices required to
be given pursuant to the HSR Act shall have been made, all approvals or consents required
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thereby shall have been obtained and the waiting periods required thereby, if any, shall have
expired or terminated.
9.6
Title Matters. The Real Property shall not have become encumbered or subject to
any matter that is not a Permitted Exception or otherwise agreed to by Integrity.
9.7

Church Approval. DOCMSC and DCHS shall have received Church Approval.

9.8

No Material Adverse Effect. There shall not have been a Material Adverse Effect.

9.9
Other Instruments and Documents. DCHS shall have delivered, or caused to be
delivered, to Integrity and BlueMountain each of the instruments and documents required to be
delivered by DCHS or any of the DCHS Affiliates pursuant to Section 3.3, and each of the
Transaction Documents shall have been executed and delivered by each of the parties thereto.
9.10 Bankruptcy Between the Effective Date and the Closing, neither of DCHS nor
any of the DCHS Affiliates shall have been the subject of any voluntary or involuntary
proceeding of bankruptcy, insolvency, reorganization, or moratorium under any state or federal
laws, or shall have made an assignment for the benefit of creditors.
9.11 Group Ruling.
DCHS shall have received a group exemption ruling
determination letter from the Internal Revenue Service confirming (a) DCHSs status as (i) an
entity exempt from federal income tax as a charitable organization under Section 501(c)(3) of the
Code, (ii) a non-private foundation (i.e., public charity) by reason of being a supporting
organization pursuant to Section 509(a)(3) of the Code, and (iii) the central or parent
organization of the group exemption ruling, and (b) the confirmation of the tax-exempt status
under Section 501(c)(3) of the Code of each of the Hospitals and other DCHS Affiliates, by
reason of inclusion in the group exemption ruling, except for the Philanthropic Foundations
which are not included in the group exemption ruling.
ARTICLE 10
TERMINATION
10.1 Termination. This Agreement and the Transaction contemplated hereby may be
terminated prior to Closing:
(a)

upon the mutual written consent of Integrity, each BlueMountain Fund,

and DCHS;
(b)
by Integrity, the BlueMountain Funds, or DCHS if the Closing has not
occurred on or before the date which is nine (9) months following the Effective Date (the
Outside Date) by providing written notice to the other Parties at any time on or after the
Outside Date; provided, however, that no party may terminate this Agreement under this
Section 10.1(b) if on the Outside Date all conditions to the obligations of Integrity,
BlueMountain, or DCHS at Closing set forth in Article 8 and Article 9, as applicable, have been
satisfied. Notwithstanding any of the foregoing of this Section 10.1(b), the right to terminate this
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Agreement under this Section 10.1(b) shall not be available to any Party whose material breach
of this Agreement has been the cause of the failure of the Transaction to have been consummated
on or before the Outside Date;
(c)
by Integrity or the BlueMountain Funds in the event of a failure of a
condition set forth in Article 9, except Sections 9.4 or 9.5 (other than with respect to consents set
forth on Schedule 4.2(c) and a filing or notice required pursuant to the HSR Act), if such failure
has not been (i) waived in writing by Integrity and the BlueMountain Funds or (ii) cured by
DCHS within thirty (30) calendar days after service by Integrity or the BlueMountain Funds
upon DCHS of a written notice which describes the nature of such failure; provided, however,
Integrity and the BlueMountain Funds shall not be permitted to terminate this Agreement
pursuant to this Section 10.1(c) if such failure was caused by Integrity or BlueMountain or if
Integrity or BlueMountain is in material breach of this Agreement or if such breach or failure
results or arises from the Effect of the Transaction on the Tax Status of the Bonds;
(d)
by DCHS in the event of a failure of any condition set forth in Article 8,
except Section 8.4 or 8.5 (other than with respect to a filing or notice required pursuant to the
HSR Act), if such failure has not been (i) waived in writing by DCHS or (ii) cured by Integrity or
BlueMountain, as applicable, within thirty (30) calendar days after service by DCHS upon
Integrity and the BlueMountain Funds of a written notice which describes the nature of such
failure; provided, however, that DCHS shall not be permitted to terminate the Agreement
pursuant to this Section 10.1(d) if such failure was caused by DCHS or if DCHS is in material
breach of this Agreement; or
(e)
by either DCHS, Integrity, or the BlueMountain Funds, if a Governmental
Entity of competent jurisdiction has issued a judgment or taken any other action, in each case,
which has become final and non-appealable or which enjoins or otherwise prohibits the
Transaction from Closing.
10.2 Effect of Termination. In the event of any termination of this Agreement, as
provided by Section 10.1 or under Section 3.1 or Section 3.4(b) or Section 3.4(c), this Agreement
will thereupon become void and of no effect, no party will have any liability to any other party
arising out of such termination, and no party will have any further rights or obligations
hereunder, except for the obligations of the parties contained in this Section 10.2, Section 2.4,
Section 13.1, Section 13.5, Section 13.6 and Section 13.17 and those other obligations which
explicitly provide for survival in the event of a termination pursuant to Section 10.1. The
provisions of Section 2.4 shall govern the disposition of the Deposit.
ARTICLE 11
TAX AND COST REPORT MATTERS
11.1 Tax Matters. The Parties shall cooperate fully with each other, as and to the extent
reasonably requested by the other party, in connection with any Tax matter related to the
Transaction or the operation of the Hospitals (including by the provision of reasonably relevant
Records or information subject to the other terms and conditions of this Agreement applicable to
such Records, including without limitation, Section 2.2(b) and Section 12.2).
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11.2 Cost Report and Other Audits and Contests. After the Closing Date and for the
period of time necessary to conclude any pending or potential audit, administrative or judicial
appeal, or contest of any Cost Reports or reimbursement or payments made with respect to the
Hospitals concerning periods ending on or before the Effective Time, Integrity shall within
fifteen (15) Business Days of Integritys receipt of the same, forward to DCHS all information
received from payors relating to periods prior to and as of the Closing Date, including, without
limitation, any and all correspondence relating to the Cost Reports or rights to settlements and
retroactive adjustments on Cost Reports, notices of program reimbursement, proposed audit
adjustments and the like and Integritys responses to same. Within a reasonable period of time
after the final settlement or other adjudication of each Cost Report, Integrity shall provide DCHS
with a copy of each such final settlement or contest.
ARTICLE 12
POST-CLOSING MATTERS
12.1

Retained Assets and Excluded Liabilities.

(a)
Subject to Section 11.2, any asset, liability, remittance, mail or other
communication that is a Retained Asset or an Excluded Liability (i) pursuant to the terms of this
Agreement; or (ii) as otherwise determined by the Parties mutual written agreement; or (iii)
absent such agreement, as determined by adjudication by a court or similar tribunal, which
comes into the possession, custody, or control of Integrity or DCHS after the Closing, shall
within five (5) Business Days following receipt of such be transferred, assigned, or conveyed to
DOCMSC at the cost of DCHS. DCHS shall not have any right, title, or interest in or obligation
or responsibility with respect to such Retained Assets or Excluded Liabilities except that DCHS
shall hold such Retained Assets and Excluded Liabilities in trust for the benefit of DOCMSC.
(b)
Subject to Section 11.2, any asset, liability, remittance, mail and other
communication of or relating to the System that does not constitute a Retained Asset or Excluded
Liability (i) pursuant to the terms of this Agreement; (ii) as otherwise determined by the Parties
mutual written agreement; or (iii) absent such agreement, as determined by adjudication by a
court or similar tribunal, which comes into or remains in the possession, custody or control of
DOCMSC or any of its Affiliates after the Closing shall within five (5) Business Days following
receipt of such be transferred, assigned or conveyed to DCHS at the cost of DOCMSC or its
Affiliate, as applicable. DOCMSC shall not have any right, title or interest in or obligation or
responsibility with respect to such asset or liability except that DOCMSC shall hold such
assumed asset and liability in trust for the benefit of the System.
12.2

Access to Records After Closing.

(a)
From the Closing Date until seven (7) years after the Closing Date, or such
longer period as required by applicable Laws, Integrity shall cause DCHS to keep and preserve
all records relating to the System that are not Retained Records. After the Closing, DCHS shall
grant to DOCMSC access to and permit DOCMSC to make copies of any records relating to the
System that are not Retained Records as may be reasonably necessary for DOCMSC (i) to
comply with any Law, or (ii) for any lawful purpose including, without limitation, actions by
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DOCMSC in performance of its obligations, or the exercise of its rights, under this Agreement.
Integrity acknowledges that, as a result of entering into this Agreement and operating the
Hospitals pursuant to the Management Agreement, Integrity will gain access to patient records
and other information which are subject to Laws concerning confidentiality. Integrity shall
comply with and shall maintain all records relating to the System in accordance with all
applicable Laws, and the requirements of all relevant insurance carriers.
(b)
Integrity and BlueMountain shall give full cooperation to DOCMSC, the
Released Parties, and DCHS insurance carriers in respect of the defense of claims by third
parties against DOCMSC, including by making the Continuing Employees and System Office
Employees available for interviews, depositions, hearings and trials and making all of Integritys
employees available to assist in the securing and giving of evidence and in obtaining the
presence and cooperation of witnesses. DCHS hereby agrees to release and hold harmless all
individuals released, held harmless and/or indemnified by Integrity under this Agreement.
(c)
After the Closing, DOCMSC shall grant to Integrity and BlueMountain
access to and permit Integrity and BlueMountain to make copies of any of the Retained Records
in its possession as may be reasonably necessary for Integrity or BlueMountain (i) to provide
patient care or perform the Management Agreement, or (ii) comply with any Law, or (iii) for any
lawful purpose including, without limitation, actions by Integrity or BlueMountain in
performance of its respective obligations, or the exercise of its respective rights, under this
Agreement. Any Retained Records delivered to or made available to any party shall be returned
to DOCMSC when such use therefor has terminated.
(d)
Access to Retained Records pursuant to Section 12.2(c) shall be, whenever
reasonably possible, during normal business hours and with reasonable prior written notice of the
time when such access shall be needed.
(e)
To the maximum extent permitted by any Law, if any Person requests or
demands, by subpoena or otherwise, any documents relating to the Excluded Liabilities or
Retained Assets, promptly after receiving the request for such documents and prior to any
disclosure of such documents, Integrity shall notify DOCMSC and shall provide DOCMSC with
the opportunity to object to, such request or demand.
12.3 Consents; Provision of Benefits of Certain Contracts. DCHS, Integrity and
BlueMountain shall each use reasonable efforts and cooperate in good faith (i) to obtain any
additional consents, approvals, authorizations, accreditations, certifications, clearances and
Licenses in addition to those listed on Schedules 6.4(b), 7.1(a)(ii) and 7.1(a)(iii), or which
DCHS and Integrity agree to be necessary or appropriate and which have not been obtained as of
the Closing Date; (ii) in the preparation of any document or other material which may be
required by any Governmental Entity or accrediting or certifying bodies as a predicate to or
result of the Transaction; and (iii) to effectuate the assignment or provision of benefit of any
additional Contracts or Real Estate Leases to Integrity, if any, that have not already been
assigned as of the Closing Date in accordance with Section 7.4.

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ARTICLE 13
MISCELLANEOUS
13.1 Enforcement Expenses. In the event any Party elects to incur legal expenses to
enforce, defend or interpret any provision of this Agreement as between it and the other Party,
the prevailing Party will be entitled to recover from the non-prevailing Party (or non-prevailing
Parties, jointly and severally) the amount of such legal expenses, including reasonable attorneys
fees through appeal, costs and necessary disbursements, in addition to any other relief to which
such Party will be entitled.
13.2 Survival and Enforcement of Governance Provisions. At all times, DOCMSC
shall have the authority to enforce DCHS rights under this Agreement, including the postClosing covenants of Article 7 and Article 13. For the avoidance of doubt, it is the express intent
of the Parties that DOCMSC shall have the right to enforce the obligations of DCHS,
BlueMountain and Integrity without the impediment of any defense to an action to enforce such
rights that Integrity or DCHS may have other than actual fraud on the part of DOCMSC. After
the Closing, DCHS shall not rescind, modify or otherwise diminish the indemnification afforded
to former members, directors, officers, employees, and agents of DCHS and the DCHS Affiliates
as in effect under the governing documents of DCHS and the DCHS Affiliates as of the Closing.
13.3 Notice. Any notice, demand or communication required, permitted or desired to
be given hereunder must be in writing and will be deemed effectively delivered when personally
delivered or when actually received by recognized overnight courier, addressed as follows:
If to DCHS:
Daughters of Charity Health System
26000 Altamont Road
Los Altos Hills, California 94022-4317
Telephone number: 650-917-4528
Facsimile number: 650-917-4534
Attention: President and Chief Executive Officer
With a copy (which shall not constitute notice) to:
Ropes & Gray LLP
3 Embarcadero Center, Suite 300
San Francisco, California 94111
Telephone number: 415-315-6394
Facsimile number: 415-315-4801
Attention: John O. Chesley, Partner
Daughters of Charity Health System
26000 Altamont Road
Los Altos Hills, California 94022-4317
Telephone number: 650-917-4522
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Facsimile number: 650-941-6309


Attention: Pascale Roy, General Counsel
If to DOCMSC:
Daughters of Charity Ministry Services Corporation
26000 Altamont Road
Los Altos Hills, California 94022-4317
Telephone number: 650-949-8868
Facsimile number: 650-949-8864
Attention: Chair of the Board of Directors
With a copy (which shall not constitute notice) to:
Ropes & Gray LLP
3 Embarcadero Center, Suite 300
San Francisco, California 94111
Telephone number: 415-315-6394
Facsimile number: 415-315-4801
Attention: John O. Chesley, Partner
If to BlueMountain:
BlueMountain Capital Management, LLC
280 Park Avenue, 12th Floor
New York, NY 10017
Telephone number: 212-905-2184
e-mail: legalnotices@bmcm.com
Attention: Rick Horne, Associate General Counsel, Tax
With a copy (which shall not constitute notice) to:
Foley & Lardner LLP
111 Huntington Ave., Suite 2600
Boston, MA 02199-7610
Telephone number: (617) 342-4055
Facsimile number: 415-315-4801
Attention: J. Mark Waxman, Partner
If to Integrity:
2200 West Third Street, Suite 200
Los Angeles, CA 90057
Telephone number: (310) 498-6157
e-mail: creem@integrityhci.com
Attention: Mitch Creem

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With a copy (which shall not constitute notice) to:


Foley & Lardner LLP
111 Huntington Ave., Suite 2600
Boston, MA 02199-7610
Telephone number: (617) 342-4055
Facsimile number: 415-315-4801
Attention: J. Mark Waxman, Partner
or to such other address, or to the attention of such other Person, as any Party may designate by
notice delivered in like manner.
13.4 Schedules and Other Instruments. Each Schedule provided hereunder and each
written disclosure required hereby and Exhibit attached hereto is incorporated by reference into
this Agreement and will be considered a part hereof as if set forth herein in full.
13.5 Governing Law; Jurisdiction. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of California applicable to
agreements made and to be performed entirely within such State, without regard to the conflicts
of law principles of such State. The parties hereto agree that any action seeking to enforce any
provision of, or based on any matter arising out of or in connection with, this Agreement or the
Transaction may only be brought in the United States District Court for the Northern District of
California or any California State court sitting in the County of San Francisco, California, and
each of the Parties hereby consents to the exclusive jurisdiction of such courts in any such suit,
action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit, action or
proceeding in any such court or that any such suit, action or proceeding which is brought in any
such court has been brought in an inconvenient forum. Process in any such suit, action or
proceeding may be served on any Party anywhere in the world, and each Party agrees that, in
addition to any method of service of process otherwise permitted by law, service of process on
each party may be made by any method for giving such Party notice as provided in Section 13.3,
and shall be deemed effective service of process on such Party.
13.6 Specific Performance. Each of the Parties acknowledges and agrees that the other
Party would be damaged irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached or violated.
Accordingly, each of the Parties agrees that, without posting a bond or other undertaking, the
other Party will be entitled to an injunction or injunctions to prevent breaches or violations of the
provisions of this Agreement, including specifically the provisions set forth in Section 6.8 and to
enforce specifically this Agreement and the terms and provisions hereof in addition to any other
remedy to which the other Parties may be entitled, at law or in equity, including without
limitation that DOCMSC can seek specific performance to enforce Sections 7.3 against Integrity.
Each party further agrees that, in the event of any action for specific performance in respect of
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such breach or violation, it will not assert that the defense that a remedy at law would be
adequate.
13.7 Amendments. This Agreement may not be amended other than by written
instrument signed by DCHS, DOCMSC, BlueMountain, and Integrity.
13.8 Public Disclosure. Except for: (a) necessary disclosures to such Partys directors,
officers, employees, counsel, accountants, bankers and other agents; (b) disclosures deemed to be
required by Integrity or DCHS, upon the advice of counsel, under any Laws, and after reasonable
prior notice to the other Party; (c) disclosures made with the mutual written consent of Integrity
and DCHS; and (d) disclosures made to any Governmental Entities, each Party will keep the
existence and the provisions of this Agreement confidential both prior and subsequent to the
Closing Date. In addition, DCHS and Integrity shall consult with each other as to the form and
substance of any press release or other public disclosure materially related to this Agreement or
the Transaction contemplated hereby, and DCHS and Integrity each shall have the right to
review and comment on the other Partys press releases prior to issuance.
13.9 Assignment and Benefit. This Agreement will inure to the benefit of and be
binding upon the Parties hereto and their respective legal representatives, successors and
permitted assigns. Neither Party may assign, delegate or otherwise transfer either this Agreement
or any of the Partys rights, interests or obligations hereunder without the prior written approval
of the other Party, and any attempt to do so will be null and void ab initio. Notwithstanding the
foregoing, either Integrity, a BlueMountain Fund, or BlueMountain may assign certain of their
respective rights, interests or obligations hereunder to various of their Affiliates without
DOCMSC and DCHS consent as of or after the Closing; provided, however, that no such
assignment of this Agreement will relieve Integrity, a BlueMountain Fund, or BlueMountain of
any of their respective obligations hereunder. Except as otherwise set forth in this Agreement,
this Agreement is not intended to benefit any Person other than the Parties and their respective
Affiliates.
13.10 Waivers and Consents. Any waiver of any provision of this Agreement and any
consent given hereunder must be in writing signed by the party sought to be bound. The waiver
by any Party of a breach or violation of any provision of Agreement will not operate as, or be
construed to constitute, a waiver of any subsequent breach or violation of the same or any other
provision hereof. No delay or failure on the part of any Party in exercising or enforcing any right,
power or privilege hereunder will operate as a waiver thereof nor will any single or partial
exercise of any right, power or privilege preclude any other or further exercise of any other right,
power or privilege.
13.11 Severability. In the event any provision of this Agreement is held to be invalid,
illegal or unenforceable for any reason and in any respect, such invalidity, illegality or
unenforceability will in no event affect, prejudice or disturb the validity of the remainder of this
Agreement, which will be and remain in full force and effect, and enforceable in accordance with
its terms.

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13.12 Counterparts. This Agreement, and any document or instrument required or


permitted hereunder, may be executed in counterparts, each of which will be deemed an original
and all of which together will constitute but one and the same instrument. The Parties agree that
facsimile and electronically scanned or pdf copies of signatures shall be deemed originals for all
purposes hereof and that a party may produce such copies, without the need to produce original
signatures, to prove the existence of this Agreement in any proceeding brought hereunder.
13.13 Entire Agreement. This Agreement, including the recitals, exhibits and schedules
and any other agreement which is incorporated herein by reference including the agreements and
documents contemplated by Article 3, supersede all previous agreements and constitute the
entire agreement of whatsoever kind or nature existing among the Parties representing the within
subject matter, and no party will be entitled to benefits other than those specified herein. The
parties specifically acknowledge that in entering into and executing this Agreement, the Parties
rely solely upon the representations, warranties and agreements contained herein and therein and
no others. All prior representations or agreements, whether written or oral, not expressly
referenced herein are superseded.
13.14 Headings. The section and other headings contained in this Agreement and in the
Disclosure Schedules, exhibits and schedules to this Agreement are included for the purpose of
convenient reference only and shall not restrict, amplify, modify or otherwise affect in any way
the meaning or interpretation of this Agreement or the Disclosure Schedule, exhibits and
schedules hereto or thereto.
13.15 Gender and Number; Construction. All references to the neuter gender shall
include the feminine or masculine gender and vice versa, where applicable, and all references to
the singular shall include the plural and vice versa, where applicable. Unless otherwise expressly
provided, the word including followed by a listing does not limit the preceding words or terms
and shall mean including, without limitation.
13.16 Confidentiality. That certain Confidentiality Agreement, dated May 8, 2015,
between DCHS and BlueMountain (the Confidentiality Agreement) shall remain in effect and
be binding on BlueMountain and DCHS notwithstanding Section 17(ii) of the Confidentiality
Agreement and execution of this Agreement. The Parties acknowledge that the information being
provided to them in connection with the transactions contemplated hereby is subject to the terms
of the Confidentiality Agreement and hereby agree that the term of the Confidentiality
Agreement shall be extended until the Closing or the termination of this Agreement by its terms;
provided, that, regardless of whether the Closing occurs, the Parties acknowledge that any and all
other information provided to them by the other Parties or any of their Affiliates or
representatives concerning any of the Parties or any of their Affiliates shall remain subject to the
terms and conditions of the Confidentiality Agreement.
13.17 System Representative.
(a)
DCHS is hereby appointed by all of the DCHS Affiliates as the System
Representative and as their true and lawful attorney-in-fact and agent, with full powers of
substitution and resubstitution, in such DCHS Affiliates name, place and stead, in any and all
- 64 -

capacities, in connection with the transactions contemplated by this Agreement and/or the other
Transaction Documents, granting unto said attorney-in-fact and agent, full power and authority
to do and perform each and every act and thing requisite and necessary to be done in connection
with the Transactions as fully to all intents and purposes as such DCHS Affiliate might or could
do in person. Each DCHS Affiliate hereby irrevocably appoints the System Representative as its
agent for the purpose of receiving service of process or other legal summons in connection with
any proceeding brought by Integrity in any court in connection with or relating to this Agreement
and/or the other Transaction Documents. The power-of-attorney granted in this Section 13.17 is
coupled with an interest and is irrevocable. The System Representative may perform its duties as
such through sub-agents and attorneys-in-fact and shall have no liability for any acts or
omissions of any such sub-agent or attorney if selected by it with reasonable care. Integrity shall
be entitled to deal exclusively with System Representative on behalf of any and all DCHS
Affiliates in connection with all matters relating to this Agreement and/or the other Transaction
Documents, and shall be entitled to rely conclusively (without further evidence of any kind
whatsoever) on any document executed or purported to be executed on behalf of any DCHS
Affiliate by the System Representative, and on any other action taken or purported to be taken on
behalf of any DCHS Affiliate by the System Representative, as fully binding upon such DCHS
Affiliate. The System Representative shall notify the DCHS Affiliates within a reasonable time
of all material actions taken by it pursuant to this Section 13.17(a).
(b)
Without limiting the generality of the foregoing Section 13.17(a), the
System Representative, acting alone without the consent of any other DCHS Affiliate, is hereby
authorized by each of the DCHS Affiliates to (i) take any and all actions under this Agreement
and/or the other Transaction Documents without any further consent or approval from any other
Person, (ii) effect payments to DCHS Affiliates hereunder or thereunder, (iii) receive or give
notices hereunder or thereunder, (iv) receive or make payment hereunder or thereunder, execute
waivers or amendments hereof, and/or (vi) execute and deliver documents, releases and/or
receipts hereunder or thereunder.
13.18 Advance Conflict Waiver. Each of Integrity and BlueMountain hereby
irrevocably waives and agrees to not assert, and agrees to cause its Affiliates (including, after
Closing, DCHS and its Affiliates) (collectively, Integrity Related Parties) irrevocably to waive
and not assert, that, as a result of representing DOCMSC and DCHS, its Affiliates, or any of
their respective officers, directors, employees, members and managers, Ropes & Gray LLP,
Pillsbury Winthrop Shaw Pittman LLP, and Perkins Coie LLP (each, a Prior Company
Counsel) has or will have any actual or potential conflict of interest arising out of or relating to
their representation, after the Closing, of DOCMSC and its Affiliates (which, for the avoidance
of doubt, after the Closing shall not include DCHS or its Affiliates after the Closing) and their
respective officers, directors, employees, members and managers (collectively, DCHS Related
Parties) in any dispute with any Integrity Related Party or any other matter involving the
Transaction, the Agreement or any of the agreements referenced herein or ancillary hereto or
transactions contemplated thereby (each, a Post-Closing Representation), even though the
interests of one or more of the DCHS Related Parties in such dispute or other matter may be
directly adverse to the interests of one or more of the Integrity Related Parties and even though
Prior Company Counsel may have represented DCHS or any of its Affiliates in a matter
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substantially related to such dispute or other matter. Each of Integrity and BlueMountain, on
behalf of itself and all other Integrity Related Parties, further agrees that, as to all privileged
communications or communications involving client confidences, in each case between
DOCMSC or any other DCHS Related Parties, on the one hand, and Prior Company Counsel, on
the other hand, to the extent relating exclusively to negotiation, documentation and
consummation of the Transaction, the Agreement or any of the agreements referenced herein or
ancillary hereto or transactions contemplated thereby (such communications collectively, the
DCHS Pre-Closing Communications), the attorney-client privilege and the expectation of
client confidence shall be deemed to belong solely to DOCMSC (and not DCHS and its
Affiliates) and DOCMSC shall control rights relating thereto on behalf of itself and the other
DCHS Related Parties. Accordingly, from and after the Closing, DCHS and its Affiliates shall
not have access to the files of Prior Company Counsel to the extent those files constitute or
reflect DCHS Pre-Closing Communications, and all books, records and other materials of DCHS
and its Affiliates in any medium (including electronic copies) to the extent containing or
reflecting any DCHS Pre-Closing Communications. DOCMSC shall have the right to cause such
material and information that is not required by Law to be retained by DCHS to be distributed to
DOCMSC immediately prior to Closing with no copies thereof retained by DCHS. Except as
otherwise permitted under this Section 13.18 in the Agreement, from and after the Closing, none
of DCHS and its Affiliates and representatives shall in any way, directly or indirectly, knowingly
use or rely upon any such materials or information, whether or not distributed to DOCMSC. To
the extent that any such materials or information are not distributed to DOCMSC they will be
held in confidence for the benefit of DOCMSC and its Affiliates, and DCHS and its Affiliates
will deliver all such material and information to DOCMSC promptly upon discovery thereof,
without retaining copies thereof, except to the extent required to be retained pursuant to
applicable Law. Without limiting the generality of the foregoing, from and after the Closing, (a)
DOCMSC and its Affiliates (and not DCHS and its Affiliates) shall be the sole holders of the
attorney-client privilege with respect to DCHS Pre-Closing Communications, and none of DCHS
or its Affiliates shall be a holder thereof, (b) to the extent that files of Prior Company Counsel
constituting or reflecting DCHS Pre-Closing Communications are property of the client, only
DOCMSC and its Affiliates (and not DCHS and its Affiliates) shall hold such property rights and
(c) Prior Company Counsel shall have no duty whatsoever to reveal or disclose any DCHS PreClosing Communications to DCHS and its Affiliates by reason of any attorney-client relationship
between Prior Company Counsel and DCHS and its Affiliates or otherwise. Notwithstanding the
foregoing, in the event of any dispute between any Integrity Related Party and DCHS Related
Party, nothing in this Section 13.18 shall operate to limit the rights or ability of any Buyer
Related Party to obtain any Pre-Closing Communications that are not privileged communications
from any Seller Related Party or Prior Company Counsel that would otherwise be discoverable
under the applicable rules of civil procedure but subject to such rules. In the event of any dispute
or litigation between a non-party to this Agreement (that is not an Affiliate of, or successor to or
assign of, a Integrity Related Party) and any Integrity Related Party, DOCMSC shall, and shall
cause Prior Company Counsel to, make any DCHS Pre-Closing Communications necessary to
such Integrity Related Partys prosecution or defense of such dispute or litigation (as the case
may be) available to the pertinent Integrity Related Party pursuant to a valid Joint Defense and
Common Interest Agreement to be agreed upon. Any such Pre-Closing Communications shared
with any Integrity Related Party under such Joint Defense and Common Interest Agreement shall
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not be disclosed by any Integrity Related Party to any third-party without the prior written
consent of DOCMSC, unless such disclosure is required by a valid court order, subpoena, or
other valid demand. Before any such disclosure is made, the Integrity Related Party from whom
disclosure is demanded shall immediately notify DOCMSC (including copies of any documents
demanding such disclosure and any other documents relating to such dispute or litigation that
bear upon the demand) and give DOCMSC a reasonable opportunity to seek a protective order or
take other appropriate protective measures, with which such Integrity Related Party will
cooperate as requested by DOCMSC. DCHS hereby acknowledges and confirms that it has had
the opportunity to review and obtain adequate information regarding the significance and risks of
the waivers and other terms and conditions of this Section 13.18, including the opportunity to
discuss with counsel such matters and reasonable alternatives to such terms. This Section 13.18
is for the benefit of DOCMSC and its Affiliates (which, for the avoidance of doubt, after the
Closing shall not include DCHS or its Affiliates after the Closing) and each Prior Company
Counsel, and DOCMSC and any of such Affiliates and each Prior Company Counsel are
intended third party beneficiaries of this Section 13.18. This Section 13.18 shall be irrevocable,
and no term of this Section 13.18 may be amended, waived or modified without the prior written
consent of DOCMSC and the Prior Company Counsel affected thereby. The covenants and
obligations set forth in this Section 13.18 shall survive for ten (10) years following the Closing
Date. Subject to the foregoing in this Section 13.18, DCHS does not waive any attorney-client
privilege, attorney work-product protection, or expectation of client confidence relating to any
other Prior Company Counsel representation of DCHS or its Affiliates prior to the Closing and
with respect to any such other representation, all confidential/proprietary information of DCHS
and its Affiliates, and all attorney-client privileged information thereof, remain the property of
DCHS and its Affiliates, and all rights in that regard are reserved.
13.19 Post-Closing Dispute Resolution.
(a)
All disputes, controversies and claims arising out of or relating to the
application of this Agreement to facts and circumstances coming into existence after the Closing
Date or the acts or omissions of the Parties with respect to this Agreement after the Closing Date
(each, a Post-Closing Dispute), shall be resolved as set forth in this Section 13.19.
(b)
The Parties shall, after one Party gives written notice of a Post-Closing
Dispute to one or more other Parties (the Post-Closing Dispute Notice), meet and confer
regarding such Post-Closing Dispute in good faith in at least two separate sessions that include
representatives of each Party with the authority to resolve the Post-Closing Dispute, such
sessions to take place at such time and place as mutually agreed upon by the Parties giving and
receiving the Post-Closing Dispute Notice (the Meet and Confer). The affected Parties shall
conduct such Meet and Confers as soon as reasonably practicable, but in no event later than
forty-five (45) days after the date of the Post-Closing Dispute Notice.
(c)
If any Post-Closing Dispute is not resolved to the mutual satisfaction of
the affected Parties within sixty (60) days after delivery of the Post-Closing Dispute Notice (or
such other period as may be mutually agreed upon by the affected Parties in writing), any
affected Party may submit such Post-Closing Dispute to mandatory arbitration conducted by the
- 67 -

American Arbitration Association (AAA) in Los Angeles or San Francisco, California in


accordance with the commercial complex litigation arbitration rules of the AAA.
(d)
Any affected Party may apply to a court of competent jurisdiction for
entry and enforcement of judgment based on the arbitration award. The award of the arbitrator
shall be final and binding upon the affected Parties without appeal or review except as permitted
by the Arbitration Act of the State of California.
(e)
The fees and costs of the arbitration, including any costs and expenses
incurred by the AAA in connection with the arbitration, shall be borne equally by the affected
Parties, unless otherwise agreed to by the affected Parties.
(f)
Except as set forth in subparagraph (e) above, each affected Party shall be
responsible for the costs and expenses incurred by such Party in connection with the arbitration,
including its own attorneys fees and costs; provided, however, that the AAA shall require the
claiming Party to pay the costs and expenses of the other Party, including attorneys fees and
costs and the fees and costs of experts and consultants, incurred in connection with the
arbitration if the AAA determines that the claims and/or causes of action brought by the Party
submitting the Post-Closing Dispute to arbitration were frivolous and without reasonable
foundation.
(g)
Notwithstanding any provision to the contrary in this Section 13.19 the
Parties reserve the right to seek specific performance under Section 13.6.

[Signatures to Follow]

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17th

17th

17th

Seton Medical Center Foundation, a California nonprofit religious corporation, joins the System
17th day of July 2015, by and among
Restructuring and Support Agreement, dated as of_
Daughters of Charity Health System, a California nonprofit religious corporation, Daughters of
Charity Ministry Services Corporation, a California nonprofit religious corporation,
BlueMountain Capital management, LLC, a Delaware limited liability company, and, Integrity
Healthcare, a Delaware limited liability company, solely for the purpose of joining Section 13 .17
thereof.

SETON MEDICAL CENTER FOUNDATION

~MvYLL 1,~

Nrune:
Print: suzanne:oxel
Title: Secretary and Treasurer

[Signature Page to - System Restrncturing and Support Agreement}

17th day

17th

17th

17th

17th

17th

17th

17th

17th

17th

17th

17th

17th

17th

ATTACHMENT 1
BlueMountain Funds

BlueMountain Guadalupe Peak Fund L.P., a Delaware limited partnership


BlueMountain Summit Opportunities Fund II (US) L.P., a Delaware limited partnership
BMSB L.P. , a Delaware limited partnership
BlueMountain Foinaven Master Fund L.P., a Cayman Island exempted limited partnership
BlueMountain Logan Opportunities Master Fund L.P., a Cayman Island exempted limited
partnership
BlueMountain Montenvers Master Fund SCA SICAV-SIF, a Luxembourg corporate partnership
limited by shares

EXHIBIT A
Transitional Consulting Services Agreement
See attached

EXHIBIT B
Management Agreement
See attached

EXHIBIT C
Commitment Letter
See attached

EXHIBIT D
Purchase Option Agreements
See attached

EXHIBIT E
IT Agreement
See attached

EXHIBIT F
Escrow Deposit Agreement
See attached

EXHIBIT G
Mitigation Plans
See attached

EXHIBIT H
Performance Improvement Plan
See attached